Walters v Perton (No 2)
[2023] VSC 335
•20 June 2023
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TESTATORS FAMILY MAINTENANCE LIST
S CI 2017 02159
| LYNNE MARGARET WALTERS | Plaintiff |
| v | |
| JANE ELIZABETH PERTON (who is sued in her capacity as the Executor of the Will and Trustee of the Estate of Donald Graeme Warring, deceased) | Defendant |
- and –
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
TRUSTS, EQUITY AND PROBATE LIST
S ECI 2018 00225
| LYNNE MARGARET WALTERS | Plaintiff |
| v | |
| JANE ELIZABETH PERTON (who is sued as trustee of the Port Eagle Investment Trust and as Executrix of the Will and Trustee of the Estate of Donald Graeme Warring, deceased) | Defendant |
| - and – | |
| JANE ELIZABETH PERTON (as Trustee of the Port Eagle Investment Trust) | Plaintiff by Counterclaim |
| v | |
| LYNNE MARGARET WALTERS | Defendant by Counterclaim |
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JUDGE: | Forbes J |
WHERE HELD: | Melbourne |
DATES OF HEARING: | 14, 17 April 2023 |
DATE OF JUDGMENT: | 20 June 2023 |
CASE MAY BE CITED AS: | Walters v Perton (No 2) |
MEDIUM NEUTRAL CITATION: | [2023] VSC 335 |
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ADMINISTRATION AND PROBATE – Testators Family Maintenance – Quantum of further provision – Mechanism to give effect to further provision – Suitability of Crisp order – Six-month rule – Where primary judgment found that the will did not make adequate provision – Where asset from which provision to be made was transferred out of estate within six months of grant of probate – Order that the sum be paid by the executor personally – Crisp order not appropriate – Administration and Probate Act 1958 (Vic) s 91, s 97.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | R Garratt KC | Nedovic Lawyers |
| For the Defendant | D Farrands KC L Mills | Darrer Muir Fleiter |
HER HONOUR:
In a judgment dated 9 February 2023 the Court determined that Lynne Walters was entitled to further provision from the estate of Donald Warring but did not determine the quantum of that further provision. The reason that it did not do so was that the parties also disputed the size of the estate from which provision was to be made. The parties agreed that some further evidence was required and that submissions on the question of quantum should be made, informed by the Court’s findings as to the size of the estate. To that end a further hearing occurred on 14 and 17 April 2023.
These reasons deal with the outstanding issue of the quantum of further provision to be made to Lynne. I will provide a separate ruling regarding the dispute as to costs which was also argued at the further hearing. These reasons assume a familiarity with the reasons of 9 February 2023 (the principal judgment). The definitions used there are adopted and used in these reasons. Additionally I have referred to, and assume some familiarity with, related proceedings between the parties before Associate Justice Derham.[1]
[1]Perton v Walters [2018] VSC 445; Walters v Perton [2019] VSC 356; Walters v Perton (No 2) [2019] VSC 542; Walters v Perton (No 3) [2019] VSC 733.
It was common ground that the estate contained the Bell St property belonging to Don. It was bequeathed in the will to his daughter Jane Perton. That property was one from which MCS conducted business in Heidelberg Heights. Don had established that business and since his retirement Jane has taken over running the business. The value of the Bell St property when in the estate was in dispute, as was the availability of that asset to meet any further provision as it had been transferred out of the estate prior to the commencement of the Part IV proceeding.
Additionally in a separate proceeding,[2] Lynne sought three declarations relevant to the content and size of the estate. One was whether the Bell St property was unencumbered when held in the estate. Jane contended the property remained encumbered by a mortgage liability supporting a guarantee given by Don during his lifetime, and Lynne contended it was unencumbered. The guarantee was for a sum said to be larger than the value of the property so that there was no equity for payment of any further provision. Second was a declaration that Lynne and/or the estate held a beneficial interest in the Eaglemont property in which she and Don had lived, although legal title was held by Jane in her capacity as trustee of the Port Eagle Investment Trust. Third, a declaration was sought that Don’s shares in his business MCS had not been validly transferred prior to his death and so remained an asset of the estate. All three matters had potential to affect the value of the estate from which any provision was to be made. Whether Lynne herself had an equitable interest in the Eaglemont property also affected her need for further provision from the estate.
[2]Being Proceeding S ECI 2018 00225 (the ‘TEP proceeding’).
In summary, the Court concluded that neither the estate nor Lynne held an equitable interest in the Eaglemont property, that Don’s shares did not form part of the estate and that the Bell St property was held by the estate unencumbered upon Don’s death.[3]
[3]Walters v Perton [2023] VSC 37 [262] (‘principal judgment’).
Summary of conclusions
I have assessed the quantum of further provision on the basis that quantum and reasonable costs that might be paid from the estate could both be met from the testator’s estate on death. The reality is that, since the Bell St property was removed from the estate and then encumbered by Jane on 17 May 2017, any further provision and any reimbursement of costs could not now be met from the estate.
For the reasons that follow, I have concluded that provision from the estate in the sum of $1,540,560 is necessary for the proper maintenance and support of Lynne. The estate presently has no capacity to pay such amount. I have concluded that the unencumbered value of the Bell St property, which was transferred out of the estate within six months of the grant of probate, should be considered as part of the estate of the testator for the purpose of making provision out of the estate. The agreed present value of that asset is $2,950,000. It would be adequate to meet further provision leaving just over $1,400,000 to meet other liabilities including costs liabilities. The remaining amount would be greater if rent due to the estate from MCS had been paid to the estate rather than to Jane. For the reasons set out in the principal judgment and further explained below I have not accepted the submission that, as a matter of discretion, I should exclude the Bell St property because there were good reasons to distribute the Bell St property within the six month period.
As the Bell St property that was removed by the executor within six months of the grant of probate was an asset that was distributed to Jane as beneficiary, it is in my view appropriate that the executor be personally liable for the payment of further provision.
The size of the estate at the time of trial
Evidence
Mr Silvester is a certified valuer who practises in the area of commercial properties and prepared a valuation for the Bell St property. He expressed the opinion that its unencumbered value (effectively vacant possession) as at 8 March 2023 is $2,950,000.[4]
[4]Exhibit 15, Plaintiff, ‘Affidavit of Clive Silvester’ sworn on 24 March 2023 in Lynne Margaret Walters v Jane Elizabeth Perton S CI 2017 02159 and S ECI 2018 00225, document exhibited at CS-4.
Jane accepted this valuation.
In addition to Mr Silvester’s opinion as to the present day value of the Bell St property, his reports dealt with market rent as at 1 January 2019, when the lease of MCS expired. In his opinion, market rent at that time was assessed to be $80,000 per annum.[5]
[5]Plaintiff, ‘Affidavit of Clive Silvester’ sworn on 24 March 2023, document exhibited at CS-4.
Jane swore a further affidavit on 29 March 2023 updating the current position as to assets and liabilities of the estate and deposed:[6]
[6]Exhibit F, Defendant, ‘Affidavit of Jane Elizabeth Perton’ sworn on 29 March 2023 in Lynne Margaret Walters v Jane Elizabeth Perton S CI 2017 02159 and S ECI 2018 00225, [3]-[8].
(a) The total value of the estate is $2,062.32 comprising a bank account of $102.32 and household contents from the Eaglemont property of $1,960. She also identified a costs order of 5 December 2019 in her favour in the TEP proceeding, which costs are unquantified.
(b) The total liabilities of the estate are $795,557.74, comprising:
(i) an Australian Tax Office debt of $50,627 (increased from $40,823.05);
(ii) a loan owed to the Port Eagle Investment Trust of $45,072;
(iii) an ANZ credit card debt of $12,815.76;
(iv) moneys owed to her as executor for discharge of debts, of $2,317.50 for land tax owing on the Bell St property, $19,869.97 for funeral expenses, and
(v) $664,854.75 for the estate’s and trustee’s approximate legal costs paid on account in defending the Part IV and TEP proceedings;[7]
[7]The affidavit appears to reference three proceedings: ‘defending this proceeding, and proceeding S ECI 00225 and proceeding S ECI 2017 02159’.
(vi) legal costs of obtaining probate of $4,343.90; and
(vii) unquantified costs orders of 14 June 2019 (as amended by order 14 August 2019) and 16 August 2019 in favour of Lynne made in the TEP proceeding.
(c) Jane deposed to receiving rental income of $16,930 for the period 1 February 2017 until 3 May 2017 as the recipient of the gift of the Bell St property.
Jane gave oral evidence. She corrected two aspects of the affidavit. In relation to the ANZ credit card she said that this amount came from a previous affidavit and that she was now aware from a letter that the executor did not have to pay off the credit card, and so she had stopped making payments on that card.[8] In relation to the funeral expenses, she said she inadvertently included a wrong Dan Murphy’s receipt and omitted a supermarket receipt from the accompanying documents.[9] She confirmed that the errors in supporting documentation did not affect the total amount for funeral expenses. In cross-examination she confirmed that the amount paid to the funeral director was $13,767.74 and the additional amounts were essentially for catering costs with some but not all costs supported by documentation.[10]
[8]Transcript of proceedings, Lynne Margaret Walters v Jane Elizabeth Perton (Supreme Court of Victoria, S CI 2017 02159 and S ECI 2018 00225, 14 and 17 April 2023), 37.14-19 (‘T’).
[9]T 40.10-16.
[10]T 40.17-20.
In cross-examination Jane said that ANZ debt had been listed in the inventory from the start but the amount changed because she had been making minimum payments. Her affidavit sworn in December 2017 exhibited an updated inventory that included the ANZ credit card debt of $14,815.76.[11] Her most recent affidavit exhibited a letter from Phillips & Cohen dated 21 February 2018 as to the estate’s liability as at that date of $12,815.76.[12]
[11]Exhibit B, Defendant, ‘Affidavit of Jane Perton’ sworn on 8 December 2017 in Lynne Margaret Walters v Jane Elizabeth Perton S CI 2017 02159 and S ECI 2018 00225, which forms part of Exhibit B, document exhibited at JEP-10.
[12]Defendant, ‘Affidavit of Jane Perton’ sworn 29 March 2023, document exhibited at JP-3.
Jane agreed in cross-examination that the only asset from which the estate’s liabilities could be met was the Bell St property,[13] although she said that at the time the property was transferred to her she thought the household contents would cover estate liabilities based upon their insured value.[14] She agreed that no bank account was opened for the estate and no rent was paid to the estate pending the transfer of the Bell St property. Jane was unable to provide an explanation as to the ATO debt. She was unable to say whether it related to income tax or some other tax liability.
[13]T 44.8-9.
[14]T 47.23-28.
Submissions
Lynne submits on the basis of this evidence that, in addition to the capital value of the Bell St property, the estate was entitled to receipt of rent had Jane not transferred the asset out of the estate within the first six months of the grant of probate or thereafter while the Part IV claim was pending. She submits that the value of rent foregone should be included in the assessment of the value of the estate at the time of trial. Lynne submits the amount is to be calculated at the rate of $67,000 per annum under the existing lease from the date of death until 31 December 2018. She submits that thereafter it should be calculated at the rate of $80,000 per annum had the option to renew been exercised for the benefit of the estate. This would bring the value of the estate up to $3,363,666. If the amount paid to Jane rather than the estate prior to transfer only were considered the sum of $16,930 would be added to the value.
Lynne submits that large liabilities of the estate have not been adequately explained and should be disregarded. In Lynne’s submission, had the Bell St property remained in the estate, its capital value would be sufficient to meet further provision in favour of Lynne.
While Jane accepts the valuation of the Bell St property, she submits that it was no longer in the estate by the commencement of the Part IV proceeding. She also submits that whether or not the six month rule would permit recourse to the Bell St property remains a matter in dispute. Jane maintains the position (as set out in the principal judgment at [18] and expanded by her opening and closing submission) that recourse should not be had to the Bell St property. She submits that the estate today is inadequate to support an order under s 91(1) of the Administration and Probate Act 1958 (Vic) (the Administration and Probate Act) and that s 97(1)(b), which requires any order to identify ‘the manner in which the provision shall be raised or paid’, cannot be met. Jane submits that the application should fail for this reason.
Quantum of provision
Evidence and submissions
The will expressed wishes that Lynne be paid $200,000 from the sale of the Eaglemont property; that Lynne be permitted to remain in the property rent free for a period of six months and directed that she be paid $10,000 from the residuary for relocation expenses. Notwithstanding that the property was held by a discretionary trust, Don and Lynn had lived there as their home since moving to Melbourne. The principal judgment concluded that the will did not make adequate provision for a partner who had been financially dependent upon her spouse for over 20 years, had been out of the workforce at his request since 1996 and was, at the time of Don’s death, aged 73.
Provisional figures were provided at the time of the hearing of the substantive case. Lynne submitted that adequate provision includes an amount to purchase a home, a sum for contingencies and a sum representing a ‘nest egg’ to cover the shortfall in living expenses over and above the expenses that can be met by provision of the age pension. My provisional conclusions were set out at paragraphs [305] to [312] in the principal judgment.
By the time of this further hearing the parties had reached an agreed position on the appropriate provision for contingencies and for a nest egg. The parties agreed the following sums:
(a) provision for the ‘nest egg’ contingency at $120,000;[15] and
(b) past income support at $100 per week. By April 2023 this amounted to $31,600. With the addition of interest the parties accepted that $40,560 was an appropriate allowance.[16]
[15]Defendant, ‘Defendant’s Further Submissions for Part IV Proceeding’, Submissions in Lynne Margaret Walters v Jane Elizabeth Perton S CI 2017 02159, 12 April 2023, [104] and T 22.24.
[16]T 146.27; T 178.4-10.
Lynne did not press a claim for future income shortfall, generally on the basis that she would no longer be required to pay rent and her income otherwise would be sufficient to meet her own ordinary living expenses. Jane accepts the position that no allowance is made for future shortfall.
The dispute was confined to the amount required to provide a roof over Lynne’s head.
The principal judgment concluded that the proceeds of sale of the Blackman’s Bay house owned by Lynne in Tasmania amounted to approximately $335,000 and from these funds, Lynne had an ability to contribute a sum to the cost of accommodation. [17] Lynne submits that she has had to have recourse to those proceeds for her capital gains tax liability (presently approximately $18,168) and to meet her living expenses, as well as to meet legal costs in the eviction proceedings in the sum of $135,086,[18] leaving her net proceeds of $180,000.[19] Lynne submits the majority of this sum has otherwise been spent in legal costs of the fight to get adequate provision from the estate, so that by the time of trial there was no substantial amount remaining that could be applied to accommodation.[20] Lynne relied on an additional affidavit sworn by her on 17 March 2023.[21] She deposes that she has approximately $17,000 remaining in savings, a fortnightly income of $1,486.86 and, since her son’s death, lives in Ivanhoe in a rented unit.
[17]Principal judgment (n 3) [307].
[18]Plaintiff, ‘Affidavit of Lynne Margaret Walters’ sworn on 17 March 2023, [7].
[19]Plaintiff, ‘Outline of Submissions of Plaintiff’, Submissions in Lynne Margaret Walters v Jane Elizabeth Perton S CI 2017 02159, 28 March 2023, [27].
[20]T 28.14-21.
[21]Plaintiff, ‘Affidavit of Lynne Margaret Walters’ sworn on 17 March 2023, [20].
Jane submits that in accordance with the principal judgment Lynne would have had proceeds of sale of her Blackman’s Bay property of approximately $335,000. She submits that the provision for capital gains tax that remains outstanding and an allowance for depletion to meet the past shortfall for living expenses should be deducted, thereby arriving at the sum of $280,000 to contribute to accommodation from her own resources.
Both parties relied on expert opinion as to the cost of accommodation. Mr Hooper is a certified practising valuer and colleague of Mr Silvester who undertook the commercial valuation of the Bell St property. Mr Hooper’s report dated 15 March 2023 sets out his ‘market price opinion’ for the cost of purchase of a home. Jane relied on a report of Mark Murray, a director of O’Brien’s Valuers and Property consultants, dated 31 March 2023. Mr Murray is a registered valuer.
Both Mr Murray and Mr Hooper were cross-examined.
Mr Hooper was asked to provide:
[an] opinion on the current market price, or price range to purchase a comfortable brick house of 2 to 3 bedrooms, with fixtures and fittings, of reasonable quality in good condition, in the Eaglemont, Ivanhoe or Heidelberg Heights area on an average parcel of land for that area.[22]
[22]Exhibit 17, Plaintiff, ‘Affidavit of Stuart Howard Charles Hooper’ affirmed on 17 March 2023 in Lynne Margaret Walters v Jane Elizabeth Perton S CI 2017 02159 and S ECI 2018 00225, document exhibited at SCCH-1, 7.
Based on the available sales date for similar houses in the relevant areas, Mr Hooper expressed the opinion that a ‘reasonable quality 2 to 3 bedroom dwelling on an average size allotment could be purchased in the current market’:[23]
[23]Plaintiff, ‘Affidavit of Stuart Howard Charles Hooper’ affirmed on 17 March 2023, exhibit SCCH-1.
(a) in Eaglemont, ‘within the broad range of $1,900,000 to $2,200,000’;
(b) in Ivanhoe, ‘within the broad range of $1,600,000 to $1,900,000’; and
(c) in Heidelberg Heights, ‘within the broad range of $900,000 to $1,100,000’.
In cross-examination Mr Hooper:
(a) accepted that he acted on the letter of instruction sent to him and was not provided with a copy of the principal judgment to place the purpose of his opinion in context.[24] He was not provided with any details as to Lynne’s age, previous accommodation, preferences or finances.[25]
(b) described his methodology in the following terms: in each suburb, he selected four properties by way of example to support his conclusions, although there were a greater number of properties on the market.[26] He selected freestanding houses[27] in line with his instructions and included properties above and below the range to support his estimate of the appropriate range. There was a paucity of data in respect of Eaglemont, which Mr Hooper attributed to the suburb being geographically small and tightly held.[28]
[24]T 67.6-25; Exhibit H, Defendant, ‘Expert Report of O’Brien’s Valuers and Property Consultants’ dated 31 March 2023 in Lynne Margaret Walters v Jane Elizabeth Perton S CI 2017 02159 and S ECI 2018 00225, which forms part of Exhibit H, Appendix A.
[25]T 73.11-12; T 75.2530.
[26]T 78.1-78.26.
[27]With one possible exception.
[28]T70.28.
Mr Murray was asked to provide an opinion as to:
The likely cost (including transaction costs such as stamp duty and registration fees) of the purchase of a two to three bedroom home (whether brick of weatherboard or otherwise) in the Heidelberg area, to accommodate Ms. Walters having regard to her circumstances as identified in the Judgement [sic].[29]
[29]Defendant, ‘Expert Report of O’Brien’s Valuers and Property Consultants’ dated 31 March 2023, 8.
In cross-examination Mr Murray said that he was given further oral instructions from Jane’s solicitor, Shane Dare, that his report should include accommodation options in Ivanhoe as well as Heidelberg.[30]
[30]T 56.27-57.6.
Mr Murray concluded that the likely cost to purchase such a home would generally fall:[31]
(a) in the Ivanhoe area, ‘between $750,000 and $800,000 for two bedroom accommodation with prices greater than $800,000 generally including three bedroom accommodation, modern condition, garage or land area’; and
(b) in the Heidelberg area, ‘between $550,000 and $650,000 for two bedroom accommodation with prices greater than $650,000 generally including three bedroom accommodation, modern condition or land area.’
[31]Defendant, ‘Expert Report of O’Brien’s Valuers and Property Consultants’ dated 31 March 2023, 8.
His report identified 24 relevant examples of suitable accommodation. These examples were all units or townhouses, save for the inclusion of one semi-detached house. Mr Murray agreed in cross-examination that house values are higher than home unit values.[32] Mr Murray said he used Lynne’s current address – being a home unit – as an ‘indicator of the type of property’ that should be evaluated in his report.[33] Mr Murray explained he did this having regard to Lynne’s age, which his report erroneously listed as 88 years old, rather than 79, as he thought a unit or a townhouse would best accommodate her needs.[34]
[32]T 58.29.
[33]T 61.2-3
[34]T 62.13-21.
Neither expert provided figures that made any allowance for purchase costs.
Lynne submits that a purchase price of $1.9 million with associated costs of stamp duty, transfer fee and conveyancing costs being added so that $2,109,600 be allowed for the cost of appropriate accommodation. She submits that the purchase price of $1.9 million is appropriate because Mr Hooper’s evidence was that properties at the lower end of the range were likely to require a degree of modernisation such that the higher end of the range would be required to provide her with a smaller home of comparable quality.
Jane submits that the proper amount the estate should provide, if able, for the cost of appropriate accommodation is $470,000 in addition to the $200,000 as provided for in the will which Jane undertook to meet. Jane submits that this calculation is based on Lynne purchasing a two-bedroom property in the Heidelberg area, at a valuation of $950,000 (including purchasing costs and stamp duty), with a contribution by Lynne of $280,000 from the proceeds of the Blackman's Bay property.[35]
[35]Defendant, ‘Defendant’s Further Submissions for Part IV Proceeding’, Submissions in Lynne Margaret Walters v Jane Elizabeth Perton S ECI 2017 02159, 12 April 2023, [71]-[79].
Jane submits that Lynne’s claim for proper and maintenance support has been unjustifiably increased over time. She submits that when the Part IV proceeding was commenced, Lynne claimed 75% of the estate inventory, a total claim of approximately $1.6 million. In opening submissions, Lynne’s claim for quantum was estimated as at least $800,000 for accommodation. By closing submissions Lynne’s claim for the cost of accommodation is in excess of $2,000,000, an amount that Jane submits is in excess of what is necessary.
Jane also submits that, rather than pay the sum of $470,000 (or another sum determined by the Court), the Court should make a Crisp order, affording Lynne a portable life interest in property held within the testator’s estate, with sufficient flexibility to cater for changing accommodation needs into the future. Jane submitted this is appropriate having regard to Lynne’s age and needs.[36] In the circumstances a Crisp order was proposed with the appointment of an independent trustee solicitor to be the trustee of the property subject to the order.
[36]Ibid [84]-[94].
Method of provision from the estate
Aside from the quantum of any provision the parties addressed the question of whether and how any provision could be ordered. Section 91(1) of the Administration and Probate Act provides:
Despite anything to the contrary in this Act, on an application under section 90A, the Court may order that provision be made out of the estate of a deceased person for the proper maintenance and support of an eligible person.
The power of the Court in making orders is broad, however the content of a family provision order is to comply with s 97 which provides:
(1)Every family provision order making provision for any person shall specify (inter alia)—
(a) the amount and nature of the provision;
(b)the manner in which the provision shall be raised or paid out of some and what part or parts of the estate of the deceased; and
(c) any conditions restrictions or limitations imposed by the Court.
(2)Unless the Court otherwise orders the burden of any such provision shall as between the person beneficially entitled to the estate of the deceased be borne by those persons in proportion to the values of their respective estates and interests in such estate:
Provided that the estates and interests of persons successively entitled to any property which is settled by such will shall not for the purposes of this subsection be separately valued but the proportion of the provision made under this Part to be borne by such property shall be raised out of or charged against the corpus of such property.
Jane submits that there are no assets in the estate that could be raised to pay the provision. She submits that the Bell St property is no longer an estate asset for the purpose of satisfying any provision. As the estate is inadequate to support an order, the application must fail and Lynne’s submissions do not address this impediment.
Jane’s supplementary submissions argue that the six month rule gives protection to an executor for personal liability where a distribution of the estate is made more than six months after a grant of probate.[37] That protection is sourced in s 99A(3) of the Administration and Probate Act.
[37]Defendant’s Further Submissions for Part IV Proceeding, 12 April 2023, [117].
However, Lynne submits that the ‘six month rule’, as set out in the principal judgment,[38] refers to the position where an executor has made a partial distribution of an estate within six months of a grant of probate. In Re Jones; Noonan v Jones (‘Re Jones’), McInerney J said:
In my view the executor is not at liberty to make a final distribution before the expiration of six months after probate. If he does purport to make such a distribution, it cannot defeat the power of the court to make an order that provision be made for the applicant out of the estate which the executor has purported to distribute.[39]
[38]See principal judgment (n 3) [18].
[39]Re Jones; Noonan v Jones [1978] VR 272, 273.
His Honour came to this view, relying on the observations of the High Court in Easterbrook v Young that:
In our opinion the expression ‘out of the estate of the testator’ refers to the assets of which the testator might at his death, dispose and which have come or could come to the hands of the personal representative by reason of the grant of probate or letters of administration. When an application is made in time, it is out of those assets provision may be made by an order operating as a codicil made by the deceased in his lifetime, even if, at the time the order is made, those assets have been distributed to the intended beneficiaries.
…
The words are used to indicate both the financial limits to which the court may go in making provision for those having unsatisfied claims upon the testator and the source from which any provision so made shall be satisfied.[40]
[40]Easterbook v Young (1977) 136 CLR 308, [22], [27].
Jane submits that as a matter of discretion the Court should exclude the Bell St property from the estate at death and not make Jane personally liable for the provision for four reasons:[41]
[41]Defendant, ‘Defendant’s Submissions in Proceeding No S CI 2017 02159 and S ECI 2018 00225’, Submissions in Lynne Margaret Walters v Jane Elizabeth Perton S CI 2017 02159 and S ECI 2018 00225, 8 February 2022 [161].
(a) Lynne disclaimed her right to seek additional compensation by reason of her interactions with Jane after Don’s death;
(b) The Bell St property transfer forms were submitted but not finalised prior to any notice of the Part IV claim;
(c) Jane has a strong moral claim on the property because of her operation of MCS; and
(d) The urgency of the transfer was due to the bank’s demand that title transfer under a threat of freezing company assets.
Jane submits that Re Jones is somewhat distinguishable because, while the Court ordered further provision after the estate had already been partially distributed, ‘it did so by operation of an assumed resulting trust.’[42] Jane submits that such an approach should not be accepted because it presupposes the legislation permits this approach.[43]
[42]By footnote 72 of Defendant’s Further Submissions for Part IV Proceeding, 12 April 2023.
[43]Ibid.
Additionally, Jane’s opening submissions said that Jane’s significant CGT liability in relation to the Bell St property must be taken into account.[44]
[44]Defendant’s Submissions in Proceeding No S CI 2017 02159 and S ECI 2018 00225, 8 February 2022, [161]-[162].
Consideration
In my view the transfer of the Bell St property within six months of the grant of probate does not remove that asset from the ‘estate of the testator’ for the purpose of ordering proper provision. It does put the executor at risk of personal liability to a Part IV applicant, especially when on notice of an intended application.[45] Had the transfer occurred more than six months after the grant of probate, s 99A(3) of the Administration and Probate Act would give Jane statutory protection for her actions. It is ultimately a discretionary matter, having regard to all the circumstances, as to whether the court should order provision charged against the Bell St property or against the executor personally.
[45]Younan v Younan(No 2) [2015] VSC 549 [9].
I do not accept Jane’s argument that provision was effected in Re Jones because of the operation of an assumed resulting trust.
In Re Jones the defendant beneficiary and executor held the estate’s assets during the period of six months from the grant of probate. The Court found:
“That [the defendant] may have parted with those assets in order to pay off the mortgage on his own house… is no answer to this Court’s power to make an order. He may find that he has to mortgage his house… in order to raise the amount which by this order is directed to be paid to the plaintiff as provision for her proper maintenance and support. That, however, is not a matter which concerns this Court.[46]
[46]Citation from the unreported version of Re Jones (n 39), (Supreme Court of Vic, McInerney J, 6 December 1977), 19.
The Court’s power to make an order against an execution was not an exercise of statutory construction, and any potential existence or lack thereof of an assumed resulting trust was not relevant to the decision. The position was different in respect of proceedings brought outside the six month period, which required an extension of time.
The timing of the transfer out of the estate is significant and it is necessary to say something more about this aspect of the chronology beyond the matters in the principal judgment.[47] Jane applied for probate on 17 March 2017 and swore an affidavit of assets and liabilities. On 28 March 2017 Don’s will was admitted to probate. On 20 April 2017 Jane’s solicitor sent applications for transmission of the Bell St property to Jane as executor and then to Jane personally, to an agent for lodgement with the Land Titles Office. Jane also said that the transfer was initiated ‘in March 2017’ and that shortly after Don’s funeral on 13 February 2017 the bank requested a meeting and told her that the property had to be transferred as soon as possible.[48]
[47]See principal judgment (n 3) at [18], [340].
[48]These are taken from the agreed chronology prepared by the parties.
On 2 May 2017 Lynne’s solicitor gave notice of her intention to apply under Part IV of the Administration and Probate Act. Jane was told of the letter the same day.[49] In her affidavit Jane describes the contents as a surprise.[50] That letter sought a number of items of information and requested an undertaking that assets not be distributed until the claim is finalised.
[49]Exhibit B, Defendant, ‘Affidavit of Jane Elizabeth Perton’ sworn on 8 December 2019 in Lynne Margaret Walters v Jane Elizabeth Perton S ECI 2018 00225, [49].
[50]Ibid.
Despite the letter of 2 May, the next day the agent for Jane’s solicitor lodged the applications for transmission of the Bell St property to herself as executor and thereafter to herself in her own right.
There was no evidence that, having received the letter of 2 May 2017 Jane’s solicitors took any step to halt the transfer temporarily or otherwise from executor to beneficiary. Jane’s solicitors did not provide any response to the letter of 2 May until 9 May, at which time they simply said that they were seeking instructions from Jane. Meanwhile, Jane encumbered the Bell St property as security for her guarantee of MCS borrowings on 17 May 2017. The substantive reply was not sent to Lynne’s solicitors until 29 May 2017. On that day two letters were sent: one from Darrer Muir Fleiter lawyers, acting for Jane as executor; and the other from Madgwicks, acting for Jane in her capacity as trustee of the PEI Trust. The letter from Darrer Muir Fleiter asserts, among other things:
Following the deceased’s passing the NAB insisted that our client immediately transfer the freehold reversion of the Bell St property pursuant to the terms of the Will. This was done prior to and without notice of your client’s claim.
It is clear from the agreed chronology that while the transmission of title was in train prior to formal notice of the Part IV claim, the transmission to Jane as the legal personal representative and then to herself personally were both registered the day after notice was given. The new mortgage was entered into two weeks later with unequivocal notice of the intended Part IV proceeding.
For the reasons set out in the principal judgment, I do not accept that Jane was compelled by the NAB to urgently transfer title under threat of freezing MCS accounts. Nor do I accept that individually or in combination the four reasons proffered by Jane would be a basis not to order that she meet the further provision personally. Lynne’s behaviour did not disclaim any right to adequate provision, rather her evidence was that she subjectively felt the provision was inadequate. She had said as much to Don.[51] Jane’s moral claim to ownership of the Bell St property may be strong but only because of its connection to the business of MCS. Her actions in dealing with it to her own advantage, while on notice of a Part IV claim, can only be seen as acting to prefer her own and MCS’ interests over those of other persons having an entitlement to the bounty of the testator. As set out above, even though the transfer process was commenced prior to formal notice of the Part IV claim, it was concluded after notice was given, and then subsequently encumbered. As I found in the principal judgment, the decision by Jane to offer the property as security was part of a considered decision to re-organise personal and company finances and was not a matter of urgency pressed by the bank.[52]
[51]Transcript of Proceedings, Lynne Margaret Walters v Jane Elizabeth Perton (Supreme Court of Victoria, S CI 2017 02159, S ECI 2018 00225) 200.23-2011.14 (‘Trial Transcript’).
[52]Principal judgment (n 3) [259]-[261].
The size of the estate for the purpose of considering the quantum of provision is approximately $2,950,000. I accept that with the addition of rent payable to the estate it would increase slightly and that for payment of debts it would decrease.
Jane did not address any argument or submission as to any Capital Gains Tax (CGT) liability in respect of the Bell St property. The property was Don’s principal place of residence and not subject to capital gains tax.[53] As Lynne submitted, Jane has produced no evidence of any such liability of the estate. In any event, capital gains or losses from a CGT event are disregarded in transmission of a property to executor of an estate and then to a beneficiary. [54]
[53]Exhibit B, Defendant, ‘Second Affidavit of Jane Elizabeth Perton’ sworn on 9 April 2019 in Lynne Margaret Walters v Jane Elizabeth Perton S ECI 2018 00225, document exhibited at JEP-30.
[54]Plaintiff, ‘Outline of Submissions of Plaintiff’, 28 March 2023, [5], citing sections 128.10, 128.25 and 128.15(4) of the Income Tax Assessment Act 1997 (Cth).
Were it necessary to decide, I would not make any reduction for the ATO debt nor the debt to the PEI Trust owed by Don. The ATO debt for 2016 financial year is for an amount that would substantially exceed tax payable on rent from income derived from the Bell St property. Jane was unable to provide any detail as to the nature of those amounts or exhibit any documentary evidence of them. This is despite the letter of 2 May 2017 addressed to Jane’s solicitors seeking specific information as to the disclosed ATO debt as it then stood. Jane’s detailed explanation in her viva voce evidence, correcting errors in small details of the funeral expenses that had been paid by her, is to be contrasted with her inability to provide any information for the large liabilities of the estate. Similarly, the Phillips & Cohen letter made clear that the estate, not the executor, was liable for the debt. Jane’s evidence did not make clear when or why she held a belief that she was personally required to pay the estate’s debt.
Leaving to one side the question of legal costs actually incurred in the litigation, it is clear that the estate would have been able to meet the provision sought by Lynne from the Bell St property, even with all the other liabilities also being met and a generous allowance for costs.
The disputed quantum of provision now relates only to the cost of accommodation necessary for Lynne’s proper maintenance and support. Lynne’s evidence as to downsizing did not record a preference for a freestanding house or a townhouse or home unit. Both may provide examples of adequate and suitable accommodation for Lynne. The evidence of downsizing to a smaller house in the Eaglemont area[55] was limited to one or two properties visited that were smaller but of a similar value to the Eaglemont property.[56]
[55]Trial Transcript 198.1-27.
[56]Ibid 198.1-27.
It is appropriate in my view to consider values across all three suburbs: Eaglemont and Ivanhoe and Heidelberg. There are a number of reasons for this. First, the paucity of data available for Eaglemont as referred to by Mr Hooper makes it unreliable to rely simply on that suburb. Lynne’s choice of location is principally concerned to remain near her grandchildren and all three suburbs would achieve this purpose. Generally it is the location in Melbourne that is known and familiar to Lynne and an area that a wise and just testator might expect she would wish to remain. Further, the limitations of both expert opinions, as detailed below, make it difficult to accept the specific conclusions they have reached or rely on the estimates and ranges that they have concluded. These limitations would be exacerbated were the figures of only one suburb be considered.
The opinion evidence of the two valuers is of limited benefit. Evaluating their respective opinions is like comparing apples with oranges. Both accept that the market for home units and townhouses is a different market to freestanding houses. Where Mr Hooper has addressed the freestanding house market, Mr Murray has effectively limited his evidence to the townhouse and home unit market. His reasons for doing so, as set out above, are in my view based upon assumptions that have not been borne out by any evidence or instructions and are in some respects erroneous.
Lynne did not give evidence of any preference or desire to live in a freestanding house or a townhouse or home unit. I accept that her present and recent accommodation have been a product of her limited financial circumstances and Mr Murray’s assessment of these circumstances as reflective of the type of property sufficient to meet her needs is not warranted. However, it would not be appropriate to consider only free standing houses, particularly when the valuers both refer to the age of many of the freestanding residences and the associated higher maintenance costs. The move to downsize with age often carries with it a desire to ‘downsize’ maintenance and upkeep demands.
Mr Hooper’s selection of four properties from a larger number of available sales to support his conclusion is also problematic. For example, his conclusion for Ivanhoe is based upon four examples of ‘evidence [of] both below average and above average sales so I could reflect and support my opinion’, that being an opinion as to price range for a two-to-three bedroom house.[57] Those four examples are all on average land size however, two are houses larger than the instructed description, being respectively four bedrooms and two bedrooms plus study and detached studio. If one looked only at the sales identified where the house met the two-to-three bedroom description, the range would not be as high. Similarly his opinion as to Eaglemont and Heidelberg Heights has identified examples of sales of houses larger than the instructed parameters.
[57]T 78.12.
This reflects the instructions provided to Mr Hooper, which lacked any details as to the purpose of his valuation. Mr Hooper was not given the principal judgment nor any explanation that the purpose of the valuation was to provide an opinion as to the cost of accommodation for a woman in her seventies. Had this been made clear it is unlikely that Mr Hooper would have relied on the value of property on a steeply sloped block with a swimming pool, nor properties marketed towards developers and renovators as he has done. For these reasons his opinion as to the appropriate range lacks the necessary focus and is perhaps more useful as a general guide to average house prices in the suburb rather than reflective of the approximate cost of meeting Lynne’s needs for accommodation in the area.
Using the examples identified by Mr Hooper of houses across three suburbs that would meet the description of meeting Lynne’s housing needs, sales records indicate a range of $870,000 to $1,750,000. Using the examples provided by Mr Murray, two bedroom units across Ivanhoe and Heidelberg Heights range between $560,000 and $886,000 and three bedroom units between $737,000 and $905,000.[58] In reviewing Mr Murray’s report, the quality of the property rather than the number of bedrooms appears to be the most important differentiator. Among the houses in Mr Hooper’s report all were three bedrooms or more save for one property marketed as a renovation or redevelopment opportunity. Whether this reflects a lack of two bedroom houses in the areas is impossible to know.
[58]Although this property has three bedrooms plus a study and is arguably larger than the average three bedroom unit.
Jane’s submission that $950,000 is an appropriate allowance implicitly accepts that the sales records of many of the properties identified in Mr Murray’s report are not reflective of a sufficient amount to meet Lynne’s accommodation needs. This is despite the submission that with the increase of interest rates, the housing market is slowing.
I do not accept the submission that Lynne’s expectations have unjustifiably increased. In fact the opening submissions quantified the claim at $1.1 million, an amount less than 75% of an estate estimated at $1.75 million as disclosed by the early inventories. An increase in the claimed cost of secure accommodation reflects the changes in house prices between 2017 and 2023. It also reflects the revised value of the Bell St property from $1,750,000 at the time of death to $2,950,000 at the time of trial. This is also a relevant matter in determining the quantum of provision able to be provided.
In my view it is appropriate to allow a figure of $1,500,000 for the provision of secure accommodation including costs of purchase. As I said in the principal reasons, Lynne would have had approximately $335,000 from her own resources after the sale of the Blackman’s Bay house. This amount has been depleted by the need to supplement income and to a large extent the payment of legal fees. Leaving aside the question of legal fees for the present, the proceeds of sale are depleted by payment of capital gains tax and by supplementing past living expenses. Jane submitted that an amount of $280,000 was available to contribute to purchase of accommodation. In my view this submission overlooks Lynne’s continuing need to provide financially for her grandchildren. Her evidence at trial was that, during Don’s lifetime, Lynne used her rental income to meet costs for her son and grandchildren.[59] In my view, given the financial support that Lynne gave to her family during Don’s lifetime from her own resources, and given that Don’s moral duty does not extend to Lynne’s family members, it is appropriate for Lynne to retain funds to meet these ongoing expenses and for contingencies associated with her own family. With her son’s death, that obligation is likely to be more onerous into the future. If, instead of sourcing those funds from ongoing rent received it is to come from the proceeds of sale, I would in the circumstances allow for a contribution of $160,000 to be provided for her family and $120,000 to the purchase of suitable accommodation.
[59]Trial Transcript 189.17.
This means that provision for accommodation would be made in the sum of $1,380,000 together with the agreed amounts of $120,000 and $40,560 for a nest egg and contingencies. Further provision therefore would total $1,540,560.
Should a Crisp order be made?
In Crisp v Burns Philp Trustee Company,[60] Holland J of the NSW Supreme Court made orders addressing the future exigencies regarding accommodation needs. Mr Crisp had left a substantial estate. It included the home unit he shared with his wife in Kirribilli during their marriage. In his will he left the contents of the home unit to his wife but the unit itself to his executor to hold as trustee for his wife to occupy rent free until her death or notification that she no longer wished to live there (whichever occurred first) and thereafter to fall into his residuary estate. The residuary estate went to siblings, nieces and nephews who had no moral claims on the testator. Holland J said that the provision of accommodation in the will was inadequate because it restricted the widow’s choice of where to live, noting that should she choose to live elsewhere she forfeits her right to any provision for accommodation, and the bequest did not take into account her changing future accommodation needs. Holland J addressed these inadequacies by orders described this way:
So far as the accommodation problem is concerned I have considered what sort of order might best provide for the future exigencies… The order that I will make will treat the value of the home unit as if it was an accommodation fund set aside to care for the plaintiff’s accommodation and as the capital tied up in the home unit or any substituted home and the proceeds of sale of any substituted home would, to conform with the testator’s wishes, not be available to the residuary beneficiaries until the plaintiff’s death.[61]
[60](Supreme Court of NSW, Holland J, 18 December 1979).
[61]Ibid 11.
An order of this nature has been fashioned in many circumstances. It is generally required to address the needs of an eligible person while giving consideration to other beneficiaries under the will. In Milillo v Konnecke,[62] Ipp JA said:
Thus, for example a Crisp order may entitle a plaintiff, from time to time, to require the executor of a will to sell a home devised by the will, or otherwise owned by the estate, and to use the proceeds for purposes that may include purchasing another home for the plaintiff’s use and occupation, or providing accommodation for the plaintiff in a retirement village or similar institution, or in like accommodation providing hospitalisation and nursing care. The flexibility provided by such an order underlies the notion that a Crisp order confers a ‘portable life interest’.[63]
[62](2009) 2 ASTLR 235.
[63]Ibid [48].
Jane’s submissions made reference to Cross v Wasson[64] (‘Cross’) as an example of a Crisp order being made in circumstances on a plaintiff who was 79 years of age at trial. In Cross, the small estate consisted of a half-share of the property in which the deceased and her husband lived. The house had belonged to Mr Cross but he transferred an interest to his wife and they held the property as joint tenants. The judge concluded that a decision to severe the joint tenancy was prompted by the daughters of the deceased (or some of them) wanting to ensure the interest in the house passed to them and not to Mr Cross upon his wife’s death. There was no provision made for Mr Cross in the will and proceeds from his half share could not provide him with secure accommodation. His Honour accepted that he was entitled to security of accommodation in the last years of his life but not to the expense of the residuary beneficiaries who had an interest in the half share of the property after his death.[65] Apart from the age similarity, there is very little about the case of Cross relevant to the present circumstances.
[64](2009) 2 ASTLR 201.
[65]Ibid [185]-[186].
In my view a Crisp order is not appropriate in this case. While the age of an eligible person is relevant insofar as the health and other considerations make suitable accommodation a less stable prospect going forward, age by itself would not generally be sufficient to warrant the asset remaining with the estate rather than passing under a codicil to a will, unless it is needed to protect the identified interest of the eligible person or the other beneficiaries with an interest in the asset.
In this case, first and perhaps most importantly, there is no asset of the estate that could provide an ‘accommodation fund’ that would provide a portable life interest. Jane’s submission is predicated upon the estate having to purchase a suitable property but does not identify any source of funds that would give the estate the capacity to do so. Second, the residuary beneficiaries are Lynne in the fixed sum of $10,000 and Don’s three children. Jane’s submission that provision for Lynne should not be at the expense of beneficiaries of the estate is misconceived. Jane has identified no asset forming part of the residuary that would need to be protected for the benefit of the beneficiaries of that residuary, including Lynne. There is therefore no need to protect but defer beneficiary interests by crafting a portable accommodation fund. Third, a lack of goodwill between the parties is such that any arrangement would require the appointment of a professional trustee and again there is no suggestion that the estate has the resources to maintain such an arrangement.
Had the estate held an interest in the Eaglemont property, then it might have been appropriate to secure a ‘portable life interest.’ But by final submissions in 2023, the time for such consideration has long passed and had been effectively foreclosed by the possession proceeding and Jane’s subsequent encumbrance of the Eaglemont property. The only asset that would have been capable of providing for an ‘accommodation fund’ would have been the Bell St property which was removed from the estate and has since been encumbered.
Can an order for provision be made?
As outlined above, an order making provision for further maintenance operates as a codicil to a will and the order must specify the asset or part of the estate from which provision is to be made. The reason for this is clear. Further provision alters the entitlements of others under the will and it is necessary to be clear as to how those entitlements are changed. The only asset capable of satisfying further provision from the estate of the testator was that of the unencumbered Bell St property. That property would only affect Jane’s entitlement under the will.
As Jane has distributed and used to her advantage the Bell St property and its unencumbered value to the estate within six months of the grant of probate, it is in my view appropriate that Jane personally satisfy the order for provision.
Jane submitted that the appropriate orders should be that:
(a) Jane pay to Lynne the sum of $200,000 in accordance with Don’s express wishes under the Will (with this amount to be factored in to provision necessary for provision of accommodation); and
(b) provision to Lynne by Jane of three amounts for accommodation, contingencies and nest egg as determined by the Court.
Lynne submitted that there are two possible mechanisms available to meet the further provision. Lynne primarily submits that one appropriate legal mechanism is through an order that Jane pay to Lynne a sum as equitable compensation. Lynne’s submission is that Jane breached her fiduciary duty as executor of the estate by transferring the Bell St property to herself and mortgaging it to NAB. Lynne submits that equitable compensation should be ordered to place Lynne in the position she would have been in had Jane not breached her fiduciary duties by distributing the only significant asset of the estate to herself within five weeks of the grant of probate. In this aspect Lynne contends that equitable compensation includes but is not limited to the value of the entitlement to further provision. Equitable compensation extends to other loss sustained by Lynne as a result of breach – including the incurring of legal costs.
The other mechanism is to make an order pursuant to s 91 of the Administration and Probate Act that operates as a codicil to the will identifying the Bell St property as the relevant part of the estate from which the provision should be raised but order that the sum be paid by Jane personally as she has received and dealt with that asset of the estate within six months of the grant of probate.
In my view, the preferable mechanism is to make an order pursuant to s 91 of the Administration and Probate Act, identifying the necessary matters and identifying the Bell St property as the asset against which provision is to be raised. However, given that the asset is no longer in the property and the ability to use that asset to meet provision is now complicated by the guarantee given by Jane and mortgage taken out as security for that guarantee, the amount is to be paid by Jane personally.
Questions of costs should be determined upon the usual discretionary principles. The liability for costs and their quantum has been argued. Those conclusions would necessarily inform any conclusion as to equitable compensation. The claim for relief by way of equitable compensation was raised in the written submissions for the further hearing. The proceedings have not squarely been fought through pleadings or relief of this sought. For this reason, although Mr Garrett KC submits they are two pathways to the same outcome, in my view the pathway that accords with the way the cases have been conducted is the better one.
I am not prepared to make separate order that Jane pay an amount of $200,000 in accordance with Don’s express wishes in the will. Such an order would operate to tie payment to provision from funds from the sale of the Eaglemont property and not from the estate. It could also operate to make the payment conditional upon there being equity of at least that amount in the Eaglemont property, a matter which on Jane’s evidence appears unlikely. However I note the undertaking given by Jane to the Court that she would pay this amount to Lynne. It may be that a simpler order making immediate payment of this sum in partial satisfaction of the provision ordered would be appropriate.
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