Verzar v Verzar
[2014] NSWCA 45
•11 March 2014
Court of Appeal
New South Wales
Case Title: Verzar v Verzar Medium Neutral Citation: [2014] NSWCA 45 Hearing Date(s): 22 November 2013 Decision Date: 11 March 2014 Before: Macfarlan JA at [1];
Meagher JA at [3];
Barrett JA at [60]Decision: Appeal dismissed with costs.
[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 - appeal from determination of applications under ss 58(2) and 59(1) of Succession Act 2006 - contest between respondent, deceased's second wife, and appellant, deceased's adult son - child of deceased and second wife dependent on second wife - whether primary judge erred in extending time for making of respondent's application for family provision order - whether primary judge erred in being satisfied that adequate provision not made for respondent - application of s 99 of Succession Act 2006 - whether primary judge erred in ordering that appellant's and respondent's costs be borne by appellant and paid out of his interest in the deceased's estate Legislation Cited: Succession Act 2006, ss 58(2), 59(1)(c)
Testator's Family Maintenance and Guardianship of Infants Act 1916Cases Cited: Davison v Staley (unreported, Supreme Court of NSW, 21 August 1996)
De Winter v Johnstone [1995] NSWCA 120
Durham v Durham [2011] NSWCA 62; 80 NSWLR 335
Foley v Ellis [2008] NSWCA 288
House v The King [1936] HCA 40; 55 CLR 499
Mayfield v Lloyd-Williams [2004] NSWSC 419
McCosker v McCosker [1957] HCA 82; 97 CLR 566
Re Dun (Deceased) (1956) 56 SR (NSW) 181
Singer v Berghouse [1994] HCA 40; 181 CLR 201
Tobin v Ezekiel [2012] NSWCA 285; 83 NSWLR 75
Vigolo v Bostin [2005] HCA 11; 221 CLR 191Category: Principal judgment Parties: Thomas John Verzar (Appellant)
Susan Verzar (Respondent)Representation - Counsel: Counsel:
A R Lakeman, M McMahon (Appellant)
R D Wilson SC (Respondent)- Solicitors: Solicitors:
Denes Ebner Lawyers (Appellant)
Teece Hodgson & Ward (Respondent)File Number(s): 2012/400251 Decision Under Appeal - Court / Tribunal: Supreme Court - Before: Lindsay J - Date of Decision: 16 November 2012 - Citation: Verzar v Verzar [2012] NSWSC 1380 - Court File Number(s): 2011/88252
JUDGMENT
MACFARLAN JA: I agree with Meagher JA. As his Honour concludes, the appellant was unable to surmount the considerable hurdle placed in his path by the principles stated in House v R [1936] HCA 40; 55 CLR 499 which are applicable to appellate review of the primary judge's decision. In particular, the appellant was not able to establish that the decision below was "unreasonable or plainly unjust" (House at 505).
In my view the fact that Sarah, the child of the testator and the respondent born in 2004, is dependent upon the respondent for support is of considerable importance in this regard. The testator did not make any significant separate provision for Sarah but chose to leave her mother, the respondent, with what he conceived to be the means of providing for her. This is not at all uncommon but its consequence is that the very strong claims of Sarah need to be added to the respondent's individual claims when they are weighed against those of the appellant who is an adult son of the testator.
MEAGHER JA: Stephen Verzar died on 29 March 2009, aged 87. He was an educated man with doctorates in law and economics who emigrated to Australia in about 1960. His business, operated through a company, was the manufacture and sale of costume jewellery. The respondent, his second wife and the executrix of his will dated 14 June 2007, made application under the Succession Act 2006 for a family provision order in respect of his estate. The appellant, who opposed that application, is the testator's adult son by his first marriage.
The application was made more than two years after the testator's death. The primary judge (Lindsay J) extended the time for making it, made a family provision order in favour of the respondent, and ordered that the costs of the proceedings be borne by the appellant and charged against the property left to him under the terms of the testator's will: Verzar v Verzar [2012] NSWSC 1380. The appellant appeals from each of those orders.
The proceedings before and decision of the primary judge
The testator and the respondent commenced living together in 1979 and married in January 1992. In November 2004 their daughter, Sarah, was born. At the time of the testator's death Sarah was four and a half years old, the respondent was aged 87 and the appellant was aged 55.
When he died the testator (who I will refer to as Stephen) owned two commercial properties in Alexandria, one in McEvoy Street and the other in McCauley Street. He also owned, as joint tenant with the respondent, a home unit in Bondi Junction, which was their family home, and three other and smaller apartments in Bondi Junction. The respondent also owned, by that time, a home unit in Randwick, two studio apartments, one in North Sydney and the other in Bondi Junction, and an apartment in Bondi.
As at March 2009 the appellant had no significant assets and was not in full-time employment. He was living in a stable de facto relationship with a partner who had three adult children from an earlier relationship. One of those adult children, who was living with his mother, is autistic. The appellant's financial position changed, however, after January 2012, when his elderly mother died leaving him two home units in Randwick.
By his last will, Stephen gave the McEvoy Street property to the appellant and, after the payment of his debts, funeral and testamentary expenses and specific legacies totalling $55,000, left the balance of his estate, which included the McCauley Street property, to the respondent. Those legacies were $30,000 to the appellant's son and his partner, $20,000 to their son, Kira, and $5,000 to Sarah. No other and separate provision was made for Sarah; no doubt on the basis that her maintenance, education and advancement in life would be provided for by the respondent from her assets, including those received on his death - by devise or survivorship.
At the time of Stephen's death, the McEvoy Street property was tenanted and the McCauley Street property was not. The gross monthly income from the McEvoy Street property was slightly in excess of $4,600 per month. As the person to receive the residuary estate, the respondent believed that she also was entitled to the income from the McEvoy Street property until that property was transferred to the appellant. Between April 2009 and June 2012 she received approximately $199,000 in gross rental income from that property. The net amount received, after taking account of expenses incurred, was approximately $103,000. The McCauley Street property was rented from September 2011 after the respondent had spent in excess of $180,000 on repairs to it. Those expenses were funded by borrowings from Westpac, which were partly reduced by the sale in 2009 of her apartment in Bondi Junction for $250,000.
In March 2011 the appellant commenced proceedings against the respondent seeking orders that the grant of probate in her favour be revoked and that he, or some other fit and proper person, be appointed administrator of Stephen's estate. The appellant's main complaint was that the respondent had failed to administer the estate in a timely manner by conveying the McEvoy Street property to him and accounting to him for the net rents received in the period from April 2009.
By separate proceedings commenced in April 2011, the respondent sought a family provision order under s 59. That application was required, by s 58(2), to be commenced no later than 12 months after Stephen's death. The respondent sought an order extending the time for the making of her application.
The two proceedings were heard by the primary judge. The evidence of the respondent was that she had spent approximately $83,000 on expenses related to the McEvoy Street property and that in the period up to June 2012 she had received a net amount of about $103,000 - $48,000 up to December 2010 and $55,000 since January 2011. Of those amounts, $55,000 was held in a bank account of the estate. At the commencement of the hearing the appellant indicated that he was not pressing his claim for relief in the administration proceedings, except for an order for costs. That was because, as his written submissions accepted, the respondent had "now accounted for the rents received from McEvoy Street" (Black 170P). That concession was to be understood as being that the net rental income received from the McEvoy Street property was, as the respondent maintained, $103,000.
The primary judge ordered that the time for the making of the application for provision be extended; and that in addition to the provision she received under the will, the respondent receive a legacy of $100,000 and the income from the undistributed estate, net of any expenses incurred in the accrual of that income, including the net rent generated by the McEvoy Street property up to 30 November 2012. The effect of that order was to permit the respondent to retain the amount of approximately $103,000 plus the further net rental received between June and November 2012. His Honour also ordered that the legacy be paid out of and secured by a charge against the McEvoy Street property. In accordance with the agreement of the parties, he dismissed the administration proceedings.
The costs of both parties, including of the administration proceedings, were estimated to be about $270,000. The primary judge ordered that the appellant pay the respondent's costs of the family provision claim, that that liability be charged against the McEvoy Street property, that the respondent pay the appellant's costs of the administration proceedings, that those costs be set off against the costs of the appellant in the family provision proceedings which the respondent was ordered to pay and that the appellant's costs of those proceedings, assessed on the indemnity basis, be paid out of the estate and also charged against the McEvoy Street property. The consequence of these orders was that the appellant's costs of the family provision proceedings and the respondent's costs of that claim, after setting off her liability for the appellant's costs of the administration proceedings, were to be paid out of the McEvoy Street property and thus borne by the appellant.
Issues in the appeal
There are three issues in the appeal. They are:
(1)Whether the primary judge erred in extending the time for the making of the respondent's application (grounds of appeal 1, 2 and 3).
(2)Whether the primary judge erred in being satisfied in terms of s 59(1)(c) that adequate provision had not been made for the respondent and in determining under s 59(2) that provision ought be made in the amount determined (grounds of appeal 4 to 17).
(3)Whether the primary judge erred in ordering that the appellant's costs and the costs of the respondent should be borne by the appellant and paid out of the McEvoy Street property as distinct from being paid out of the residuary estate (grounds of appeal 18 to 21).
Although these issues are stated in fairly broad terms, as the discussion which follows shows, the arguments made were focused on particular aspects of these questions as formulated. An understanding of the first and second issues requires reference to the underlying facts. With few exceptions, to which reference will be made, the primary judge's findings as to those facts are not challenged.
The parties and their financial and other circumstances
Stephen's relationship with the respondent started in about 1975. In 1979 he separated from his first wife and he and the respondent commenced living together. From that time until his death, "they lived and worked together as a couple, always in close proximity": [48]. In November 1998 the respondent joined the testator as a director and shareholder of his operating company. They married in January 1992. The respondent wanted to have children. Despite IVF treatment in Sydney, and in Israel in 1997, the respondent and Stephen remained childless: [53]. In June 2003 the jewellery business was sold. In November 2004, after they had travelled to Israel for further IVF treatment, Sarah was born. At that time the testator was aged 82 and the respondent was 50.
The primary judge found that the respondent was emotionally devastated by Stephen's death and that having regard to her age and that of Sarah she had a "heightened sense of need for financial security" and an "ongoing anxiety about how she [could] possibly cope raising Sarah as a sole parent": [61]. His Honour further observed at [66]:
"In the three and a half years since Stephen's death, the Plaintiff has taken refuge in the expenditure of money on renovations of her real estate. Some of those renovations have been directed to enhancing the investment potential of, and commercial returns from, the McCauley Street property. Some of them have been, and others still in prospect are, directed towards a makeover of the Plaintiff's family home. That makeover, in part, has as a justification a desire to lighten the place up and to remove the heavy European décor reminiscent of Stephen's preferences. The Plaintiff has been struggling with Stephen's legacy and the need for her and Sarah to build a new life."
At the time of the hearing in September 2012, the respondent owned the four properties, which were previously held jointly with Stephen, and three of the four properties that she had owned separately at the time of his death. She was also entitled to the McCauley Street property, which was valued at $900,000. The eight properties had a combined value of $3,765,000: [34]. The respondent also had a liability to Westpac of approximately $774,000 (Blue 1/79F). At the time of Stephen's death their joint indebtedness to Westpac had been $838,000 (Blue 1/6V). That amount was subsequently reduced, in part by the proceeds of sale of the Bondi apartment. Although the respondent had some assets other than real property, the greater part of her wealth consisted of the eight properties having a net value of about $2,991,000. The respondent's net income from rent received in the financial year ended 30 June 2012 was about $140,000 before tax (Blue 1/81U). After paying income tax, living expenses, costs related to the properties and interest to Westpac, there was a shortfall of income over expenditure of about $30,000. The respondent funded that shortfall by further drawdowns from Westpac (Blue 1/83S). The interest paid on the Westpac loan in that tax year was approximately $50,000 (Blue 1/82H).
The appellant arrived in Australia with Stephen and his mother in about 1960. He had "a close, supportive and affectionate relationship with his father": [69]. In 1974 he assisted his father to purchase the McEvoy Street property by selling shares to fund the deposit of $14,000. Stephen subsequently repaid that loan. The appellant did not complete university. From about 1965 until at least 1992 he worked in or around the construction industry. Since 1992 he has been self-employed, or a joint venturer, in property related businesses. He no longer works full-time. In 1968 he married. That marriage ended in divorce in 1992. For the last 20 years or so he has been in a stable relationship with his partner. Her son with autism was aged about 27 at the time of the hearing. Because of that disability, he is likely to remain dependent on his mother and the appellant indefinitely.
Before January 2012 the appellant did not have any significant assets. He suffered from kidney and bladder stones and had several operations over the preceding five years. In January 2012 his elderly mother died and left him two home units in Randwick. The appellant agreed that in March 2012 his net worth was correctly estimated at about $1.1m (Blue 1/431J). At that time he was receiving rental income of about $5,000 per month from those properties: [76]. He lived in his partner's home unit and assisted in caring for her disabled son whilst she worked. In the financial year ended 30 June 2011 he had a taxable income of $30,000. The evidence indicated that this was the result of a one-off transaction in which he earned a fee for negotiating the purchase of a commercial property (Black 67F). He remained available for work on a part-time basis, although his ability to do so was somewhat compromised by his indifferent health [78].
At the time of the hearing before the primary judge, and not taking account of the McEvoy Street property, the appellant's position was as follows. He had net assets of about $1.35m, generating net rental income of about $60,000 per year. He was living in a steady de facto relationship with his partner in a property owned by her which had a value of $650,000 and was encumbered to secure a debt of about $110,000 which had been used to pay, in part, the costs of these proceedings: [75]. At that time, the McEvoy Street property had an estimated value of $850,000 and was generating a net monthly rental return of about $2,500.
The application to extend time
The decision to extend time under s 58 is a discretionary one. Accordingly, the principles for appellate review are those enunciated in House v The King [1936] HCA 40; 55 CLR 499 at 504-505; Durham v Durham [2011] NSWCA 62; 80 NSWLR 335 at [71]-[72] (per Campbell JA). The primary judge must be shown to have acted upon a wrong principle, taken into account extraneous or irrelevant matters, failed to take into account a relevant consideration or mistaken some material fact; or it must be shown that the primary judge's decision was so unreasonable or plainly unjust as to justify an inference that there has been a failure properly to exercise the discretion, although the error in doing so is not discoverable.
Section 58(2) requires that the application for a family provision order be made within 12 months after the death of the deceased person in respect of whose estate the application is made, unless the Court otherwise orders "on sufficient cause" being shown. The sufficient cause or reason to which s 58(2) is directed is that for allowing an application to be made out of time.
It was not controversial that when determining whether there was "sufficient cause" the matters to be considered included the strength of the respondent's case for the making of a family provision order, her explanation for why the application was not made within time, whether any beneficiaries whose interests would or might be affected by the making of an order would be prejudiced because of the delay and whether there had been conduct of the applicant or the beneficiaries whose interests might be affected that having regard to its consequences, might justify the grant or refusal of the application to extend time. In Re Dun (Deceased) (1956) 56 SR (NSW) 181, Myers J (at 183) suggested that such conduct by an applicant might include electing to be bound by the will or, knowing of his or her rights, delaying for a long period to make an application or lulling the beneficiaries into a false sense of security so that they order their affairs on the basis that their legacies will not be disturbed, or refrain from requiring a speedy distribution of the estate. A particular prejudice which may have to be considered is that which flows from allowing an out of time application to proceed, if that would or may have the effect of improving the applicant's position, from that which would have existed if it had been made in a timely way: Durham v Durham at [37], [56], [87] (Tobias JA; Campbell and Young JJA agreeing).
The primary judge noted that the matters to which I have referred were ones to which regard is usually had: [102], [105]. He also noted that the appellant's opposition to the grant of an extension was based on criticism of the respondent's explanation for her delay and that the appellant had not pointed to "any material prejudice to him or to the existence of any unconscionable conduct" on the part of the respondent: [107].
In relation to the respondent's explanation for her delay his Honour made the following findings: that in August 2010, which was after the 12 month period had expired, the respondent first learned that her right to make an application was subject to a time limitation: [108]; that prior to that time she had believed that she was entitled to the rent from the McEvoy Street property until it was transferred to the appellant: [110]; that the respondent did not further pursue a claim at that time because of her apprehension about the likely cost and doubt as to whether she was emotionally strong enough to engage in litigation: [109]; that in October 2010, and after the appellant's solicitors had pressed for the transfer of the McEvoy Street property, the respondent sought and received advice in conference from counsel; that advice was that she was adequately provided for by the testator's will: [111], [112]; that the respondent's fragile emotional state explained her delay after October 2010 in resolving the administration of the estate and in seeking another opinion about her prospects of obtaining a family provision order; that the commencement of proceedings for the administration of the estate by the appellant in late March 2011 brought the matter to a head; and that thereafter there was no further delay in the respondent taking advice and making her application: [113]-[116]. Taking account of his assessment that the respondent had a "meritorious" claim for relief under s 59 and that the appellant had not suffered any material prejudice by her delay, the primary judge concluded that there was sufficient cause to permit that claim to be determined on its merits: [117].
The appellant submits that the primary judge erred in the exercise of his discretion in two respects. First, it is said that he gave no or no adequate consideration to factors to be weighed against the granting of an extension, namely the length of the delay in commencing proceedings, the fact that the respondent had received advice that she was adequately provided for and the reasons which eventually motivated her to commence the proceedings for provision (ground 2). Secondly, it is said that the primary judge did not have any or any proper regard to the lack of merit of the respondent's application assessed as at March 2010 when the time for bringing it lapsed (ground 3).
As to the first argument, the appellant does not challenge the findings of the primary judge as to the sequence of events between July 2010 and March 2011 referred to above. Nor does the appellant challenge the findings of the primary judge as to the fact of the respondent's emotional state and inability to come to grips with Stephen's death and the reality of her responsibility as a mature-aged sole parent. The essence of the appellant's argument, as it was developed orally, was that the primary judge erred in giving his finding as to the respondent's emotional state any significance in explaining and justifying her delay between October 2010 and March 2011.
The appellant points out that the respondent received advice in October 2010 that she was adequately provided for and did not seek a second opinion until March 2011, which was after he had commenced proceedings to remove her as executrix. He submits that in these circumstances the correct inference to draw was that she accepted the correctness of the legal advice she had received and only brought her application as a "defensive" response to his application, aware, because she had been told, that it had no realistic prospects of success. This argument challenged the primary judge's conclusion at [113] that the respondent's fragile emotional state explained her delay during this period.
In my view the appellant has not shown that finding to have involved error. The respondent's evidence, which the primary judge accepted, as to what happened when she received counsel's advice was: that counsel's advice given in October 2010 that a claim was likely to fail was expressed to be qualified to the extent that he "didn't have all the information"; that in the period after October 2010 time was spent gaining an understanding of how much was owed from the estate and how much had been spent; that was an exercise which the respondent regarded as "emotional"; her decision whether or not to commence proceedings was based in part upon how much money she might have to pay from the estate to the appellant; and that the reason she commenced proceedings when she did was that she "came to the realisation of my material situation" (Black 54-56). That evidence justifies the primary judge's conclusion that after October 2010 the respondent sought to clarify her financial position and resolve the administration of the estate and was slow in doing so because of her emotional state. When that exercise was completed, which was at about the time that the appellant commenced his proceedings, she sought further advice and acted on it.
The appellant's second argument is that the primary judge did not, but should have, considered the prospects of the respondent's application viewed in March 2010 when the 12 month period expired. It is said that assessed at that time those prospects of success were poor because of the appellant's parlous financial position, which did not improve until his mother's death in January 2012. In support of this submission reference was made to the observations of Tobias JA in Durham v Durham at [37].
There are at least two respects in which the strength of the application sought to be made out of time may be relevant to whether there is "sufficient cause" to extend the time for making it. The first is whether the application as made has sufficient prospects of success to justify an extension. That assessment should be of the application viewed at the time it is or is likely to be heard because of the provisions of s 59(1)(c) and (2). The primary judge addressed that question and considered, taking account of the properties left to the appellant on his mother's death, that the claim was a "meritorious" one: [118]. The appellant does not, as I understand his argument, contend that the primary judge erred in approaching this question in that way; although he takes issue with the conclusion that the claim so assessed was one that should have succeeded.
The second respect in which the strength of the application may be relevant is if allowing the out of time application to proceed would or may have the effect of improving the applicant's position from that which would have obtained had the application been made in a timely manner. That is the consideration referred to by Tobias JA in Durham v Durham at [24], [37] when confirming the correctness of the approach adopted by the judge in that case and by Bryson J in Davison v Staley (unreported, Supreme Court of NSW, 21 August 1996). The appellant says that is the position in this case because, considered as at March 2010, he had no assets of any value whereas by the time of the hearing, and following his mother's death, he had assets, excluding the McCauley Street property, with a combined value of $1,355,000. The primary judge considered this argument but did not regard it as "decisive": [105], [106]. In my view he is not shown to have erred in so concluding.
Because the assessment of adequacy of provision for proper maintenance, education and advancement in life is to be made at the time the Court is hearing the application (ss 59(1)(c) and (2)), when addressing this question it is necessary first to consider when the application would have been likely to have been heard if made in a timely manner and then to compare the position in that event with the position in fact, namely that the application has been made out of time. Ordinarily, this analysis would assume, as is usually the case and as happened in this proceeding, that the application for an extension of time and the application for substantive relief are made in one proceeding and dealt with in a single hearing. (That was not the case with applications for extensions of time made under the Testator's Family Maintenance and Guardianship of Infants Act 1916: see De Winter v Johnstone [1995] NSWCA 120 at p 17 per Powell JA).
When that exercise is undertaken in this case it does not show that the respondent's position was relevantly improved because of her delay. The application was made in April 2011 and heard over two years later, in September 2013. Had the application been made in March 2010 and a similar period elapsed, the hearing would still have occurred after the appellant's mother died in January 2012. Furthermore, even if the hearing was likely to have occurred before she died, the prospect that the appellant would, as her only child, inherit a significant part of her estate was something which may have been explored forensically and, in my view, was properly to be taken into account when assessing the financial needs of the appellant as part of an assessment of the strength of the respondent's claim. As things turned out there was no need for that forensic inquiry to be made.
The appellant also submitted that the primary judge erred in not taking into account as a relevant factor the respondent's delay in administering the estate and accounting to the appellant for the rental income to which he was entitled. That the primary judge did not do so did not involve error. Any prejudice that resulted to the appellant from that conduct was not occasioned by the respondent's delay in making her claim or of the kind to which Myers J refers in Re Dun.
The primary judge is not shown to have erred in any relevant respect in his decision to extend the time for the making of the respondent's claim.
The making of the family provision order
The primary judge concluded that Stephen's will did not make adequate provision for the respondent's proper maintenance, education and advancement in life. Whether such provision has been made requires an assessment of the applicant's financial position, the size and nature of the deceased's estate, the relationships between the applicant and the deceased and other persons who have legitimate claims upon his or her bounty and the circumstances and needs of those other persons: see Tobin v Ezekiel [2012] NSWCA 285; 83 NSWLR 75 at [70] and McCosker v McCosker [1957] HCA 82; 97 CLR 566 at 571-572; Singer v Berghouse [1994] HCA 40; 181 CLR 201 at 210; and Vigolo v Bostin [2005] HCA 11; 221 CLR 191 at [16], [75], [112]. Such an assessment is necessary because of the inter-relation between "adequate provision" and "proper maintenance". Whilst the inquiry as to what is "adequate" directs particular attention to the needs of the applicant, what is "proper" requires regard to all the circumstances of the case, and in particular the size and nature of the estate and the needs of the other beneficiaries or potential beneficiaries. As was observed by Sackville AJA in Foley v Ellis [2008] NSWCA 288 at [88], a court cannot consider the propriety and adequacy or inadequacy of any testamentary provision for an applicant in isolation from the resources and needs of the other claimants on the deceased's bounty.
There was no dispute that in a case such as the present, where the claimant has a child who is dependent on her for support and education, that circumstance must be taken into account when considering what is necessary and adequate for the claimant's proper maintenance, particularly where, as here, the testator has not made any significant separate provision by his will for that child. The relevant principle and authorities are referred to by White J in Mayfield v Lloyd-Williams [2004] NSWSC 419 at [86].
The only significant assets which formed part of Stephen's estate were the McEvoy and McCauley Street properties. By his will Stephen left the McEvoy Street property to the appellant and, the appellant should die before him, to the appellant's son, Jordan. The residuary estate, after payment of expenses and the three legacies, was left to the respondent and if she died before her husband, to the appellant and Sarah in equal shares.
The respondent argued that in the circumstances existing at the time of the hearing adequate provision for her proper maintenance, education and advancement required that she receive a further provision of $500,000 which would enable Sarah to be educated to the end of her secondary studies at a private school and also provide a capital sum to be used to reduce her mortgage debt and cover other expenses: [25]. Those future education expenses were estimated at $180,000: [26]. The expenses which the respondent argued gave rise to the need for a capital sum related particularly to repairs to the McCauley Street property so as to make it fit for rental, renovations to the family home, travel, the cost of a replacement motor vehicle and unforeseen contingencies: [27], [28] and [134].
The appellant in his written and oral submissions challenges the correctness of the conclusion as to inadequate provision. He submits that his Honour did not assess the net assets and financial resources of the parties and their competing claims on Stephen's bounty. Specifically, it is said that the primary judge did not consider the nature and extent of Stephen's obligation to the appellant as his adult son or the circumstances, earning capacity and needs of the appellant, including that in relation to the care of his partner's adult child who suffers from autism; that his Honour did not consider Stephen's testamentary intentions as reflected in his will; and that his Honour took into account an irrelevant consideration, namely the emotional well-being of the respondent and her need for "breathing space in adjusting her life" (at [181]). It is also contended that the primary judge erred in not treating the value of the benefit received by the respondent from her receipt and application of the McEvoy Street property rent as $199,000 rather than $100,000.
To deal with these arguments it is necessary to consider in more detail the primary judge's reasons for the conclusion that withdrawal of the McEvoy Street property from the assets available to the respondent as a source of income rental income left her and Sarah without adequate provision for their proper maintenance [162].
At the time of the hearing the respondent's after tax income was about $108,000 (including income from the McCauley Street property) and she had living expenses and outgoings which exceeded that amount by about $30,000: [162], (Blue 1/83S). Those outgoings included interest on the Westpac loan of approximately $50,000. They did not include any significant payment or provision for Sarah's ongoing education. The respondent was not in full-time employment and could not easily return to the teaching career that she had abandoned in her youth. She had worked for many years building up the wealth which she and Stephen jointly accumulated: [156], [157]; and remained able to supplement her rental income with minor earnings from part-time work, such as with the Australian Bureau of Statistics (Blue 1/9H, Blue 1/80U).
Since Stephen's death the respondent had expended $180,000 on the McCauley Street property so as to make it ready for rental: [14]. That expenditure was funded in part from income received from the McEvoy Street property: [15]. The balance was funded from drawings on the Westpac loan (Blue 1/80J). The balance of the net rental received from the McEvoy Street property was held in a bank account. After Stephen's death the respondent also incurred or proposed to incur expenditure on some of the other rental properties and the family home: [66], [134], [176], [181], (Blue 1/84N-85G). In the same period, to fund the payment of the three legacies and to reduce the Westpac debt, the respondent had sold one of her apartments at Bondi: [90].
The need of the respondent which the primary judge considered was not adequately provided for was that of making the adjustments necessary for her to settle "into the life of a mature-aged, single parent of Sarah dependent largely, if not wholly, on rental income": [161]. In money terms those adjustments required the expenditure of $180,000 on McCauley Street and further moneys on the other rental properties and the family home. Those further moneys were not precisely calculated or identified in the evidence. The provision which the primary judge ordered represented in total an amount "of not less than $200,000 or thereabouts": [173]; being a legacy of $100,000 and an amount equal to the benefit of the income from the McEvoy Street property up to the date of distribution, which was about $103,000 plus two or three months' additional rent.
In arriving at that conclusion his Honour took into account the following matters. First, he considered the fact that the material well-being of the respondent depended on the maintenance of capital from which her income, and that available for Sarah, was wholly derived: [154]. At the same time he recognised that it was unrealistic to expect that over time the respondent would not need to draw on capital and, in doing so, have to make decisions about the investments currently held from which she could derive income or draw on capital: [155], [168].
Secondly, he weighed the competing entitlement of the appellant to share in Stephen's estate: [154]. That competing entitlement required consideration of the financial resources, property and needs of the appellant: [154], [165], [172]. His financial position was, not taking account of the McEvoy Street property, that he had net assets of approximately $1.35m generating net rental income of $60,000 per year. His de facto partner owned the unit in which the appellant resided, and was employed as a social worker earning about $28,000 a year. That home unit was valued at approximately $650,000 and encumbered in an amount of about $110,000 which had been used to pay in part the appellant's costs of the proceedings: [75], (Blue 1/432, 434, Blue 2/509). The appellant did not have a full-time job and cared for his disabled step-son whilst his partner worked: [77], [78]. He had the prospect of obtaining work on a part-time basis and of generating additional income such as he had done in the year ended 30 June 2011. The primary judge recognised the appellant's obligation to care, indefinitely, for his disabled step-son: [170].
Thirdly, the primary judge took account of the fact that Stephen had made provision for the appellant in his will, and in doing so acknowledged a duty to make some provision for him notwithstanding the competing claims of the respondent and Sarah: [132], [139]. Finally, the primary judge thought it necessary, when considering whether, and if so what, further provision should be made, to take account of the burden of the costs of the proceedings. Those costs were estimated at about $270,000. If they were to be paid out of the McEvoy Street property, which had an estimated value of $850,000, the estate could not accommodate the respondent's claim in its entirety without diminishing the provision made for the appellant by the will: [154]. That claim which was for $500,000 and the costs of both parties, would leave about $80,000: [32]. The primary judge took this into account when assessing what would be adequate provision for the respondent. Assuming that in addition to the legacy of $100,000 the costs of both parties were to be paid out of the McEvoy Street property, he calculated the value of the estate remaining for the appellant to be about $480,000: [178], [179].
Returning to the appellant's arguments, the primary judge took into account the net assets and financial resources of the respondent and appellant and their competing claims, including with respect to the appellant's need to care for his partner's adult child. He also took into account the testator's obligation to make provision for the appellant as well as his testamentary intention to do so as reflected in his will. To the extent that the primary judge took account of the respondent's emotional well-being and her need for "breathing space in adjusting her life". he did so by reference to the real need to expend money to improve the McCauley Street property so as to make it ready to generate rental income. From the respondent's perspective that was a necessary step in the process of adjusting her affairs to life without Stephen and income from the McEvoy Street property.
In the end, the primary judge's evaluation was that the respondent's concern to retain, for the present, her various properties was a reasonable and justifiable one; and that the need to make adjustments by expending those moneys was necessary for her proper maintenance and that of Sarah.
In making that broad evaluative and discretionary assessment based upon the circumstances as they appeared from the evidence, the primary judge is not shown to have mistaken the facts, or failed to consider matters that should have been considered or to have considered matters which were irrelevant or extraneous. Nor is that assessment so unreasonable or plainly unjust that it bespeaks error.
Finally, the primary judge did not err in assessing the value of the net benefit received by the respondent from the McEvoy Street property at about $100,000. That this was the value of that benefit was conceded by the appellant in final submissions before the primary judge
Costs
This question may be dealt with briefly. The primary judge ordered the costs of the respondent of the family provision proceedings to be paid by the appellant on an ordinary basis and that the appellant's costs be paid out of the estate on the indemnity basis. In each case, the costs were to be paid out of the McEvoy Street property.
Under s 99 of the Succession Act the Court may order that the costs of proceedings be paid out of the estate in such manner as it thinks fit. In the circumstances of this case the primary judge's discretion is not shown to have miscarried in his making a costs order which took account of the provision proposed to be made and the size of the residuary estate.
In circumstances where the only persons entitled to the assets of the estate were, relevantly, the appellant and respondent (for herself and Sarah), any order for payment of costs out of the estate would have to be borne in whole or part out of assets of one or other of them. In this context there were several other factors that the primary judge had to consider. The respondent's claim for a family provision order was ultimately successful, although not in the amount claimed. That would ordinarily have entitled her to an order for payment of her costs. In opposing the respondent's application, the appellant sought to uphold the terms of the will. Although no order was made that he represent the estate in the proceedings, the fact that he did so and was not considered to have acted unreasonably in so doing, generally would justify an order that his costs be paid on an indemnity basis out of the assets of the estate.
The primary judge approached the question of costs with these matters in mind. He also considered the effect that an order that the appellant's costs and those of the respondent be borne by the residuary estate (essentially the McCauley Street property) would have on the provision which he considered should be made for her. If such an order was made, the liability of the residuary estate, to which the respondent was entitled, would have exceeded the amount of the provision to be made for her. In exercising the discretion as to costs the primary judge was entitled to take that consideration into account. He did so and determined that, to secure to the respondent the provision that he considered should be made, the burden of those costs should not be borne by the respondent. No error of principle has been identified in relation to his exercise of discretion in doing so.
Conclusion
For these reasons the appeal should be dismissed with costs.
BARRETT JA: I agree. The appellant has shown no basis for intervention by this Court consistently with House v The King [1936] HCA 40; (1936) 55 CLR 499.
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