Cairns v Cairns

Supreme Court of NSW|2006-04-28|Before: Campbell J

CITATION : Cairns v Cairns [2006] NSWSC 367

DECISION : Short Minutes to be brought in.

CATCHWORDS : SUCCESSION - FAMILY PROVISION AND MAINTENANCE - daughter's application - plaintiff's sisters have brought their own proceedings under the Act which they do not bring to trial, for the purpose of defending the plaintiff's claim. Inappropriateness of that tactic - factual considerations relevant to moulding of order to do minimum damage to structure of Testator's will while accommodating times by which plaintiff will have funds to purchase estate asset

Cairns v Cairns [2006] NSWSC 364 CASES CITED : Singer v Berghouse (1994) 181 CLR 201 Vasiljev v Public Trustee [1974] 2 NSWLR 497

Diane Patricia Cairns - Plaintiff PARTIES : George Ernest Cairns (in the estate of the late George Hamilton Cairns) - First Defendant Debbie Doreen Cairns - Second Defendant Elaine Mary Durack - Third Defendant

E Cohen - Plaintiff COUNSEL : P Dowdy - First Defendant L Ellison SC - Second and Third Defendant

Colin Daley Quinn - Plaintiff SOLICITORS : Russell C Byrnes - First Defendant Haydon Fowler Corbett Jessop - Second and Third Defendant

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION EQUITY LIST

1 HIS HONOUR: This is an application under the Family Provision Act 1982 arising in the estate of the late George Hamilton Cairns. He died on 1 November 2003 aged 89. His last will was made on 15 October, 1996. Probate of it was granted to the defendant on 29 April 2004.

2 The deceased had married, but his wife had predeceased him in 1988. They had four children. The eldest was the first defendant, George Ernest Cairns, who was born on 30 November 1942. He is now 63 years old. While he had been married in the past, he is not presently married, and has no children.

3 Then there were three daughters. The eldest of them was Elaine, born on 9 December 1945, so she is now aged 60. She is married to Paul Durack. They have two daughters, born in 1970 and 1972. Those two daughters are both married and living in the Eastern Suburbs.

4 The next daughter was Diane, who is the plaintiff. She was born on 25 April 1949, so she is now aged 57. She never married, and lived in the family home for most, though not all, of her life.

5 The youngest daughter is Debbie. She was born in June 1960, so is now aged 45. She is married to Anthony Hannah, but continues to use her maiden surname. They have two daughters who are of high school age.

6 During his lifetime, the deceased carried on a business of wood and metal pattern and model-making and also operated a non-ferrous foundry. George was first apprenticed to him, and then employed by him, and later became his partner. That partnership continued until the deceased's death, although by that time, the deceased's contribution to the on-going operations of the business had stopped.

7 The major assets of the estate at the time of death were a parcel of land at Bankstown, where the factory business was carried on, valued now at somewhere between $620,000 and $680,000, and the family home at 22 Patricia Street Belfield, valued in the executor's affidavit at $630,000. As well, there was around $23,000 in liquid assets, $42,000 worth of shares; and some other minor assets worth a little over $6,000. Finally, the deceased had a half interest in the assets of his partnership with George, that half interest being valued at a little over $22,000.

8 The liabilities which were recognised in the executor's affidavit were all connected with the partnership business. The one half of the partnership liabilities which was recognised in the affidavit totalled a little over $35,000.

9 The structure of the will was simple. It appointed George as the only executor. It gave to George all the assets connected with the business, including the land upon which the business was conducted. That meant that with those assets came the liability to pay the liabilities which were associated with the business.

10 The residue of the estate was divided equally between the three daughters. As well, Diane was given an option to purchase her sisters' interest in the family home at the Valuer General's valuation at the date of death.

11 The plaintiff's claim in these proceedings was formulated in her affidavit as one that she be permitted to live in the deceased's house for her life, on the basis that she paid the outgoings and kept it insured and maintained.

12 The plaintiff's counsel, Ms Cohen, formulated in opening the basis of the claim as being one that the plaintiff be given an option to purchase her sisters' interest in the house at a particular valuation, and that she be entitled to set off against that purchase price certain debts which her sisters owed her.

13 The executor has been represented in this litigation by Mr Dowdy. Elaine and Debbie have chosen to be separately represented, with Mr Ellison SC appearing for them.

14 The plaintiff obtained a university degree and a teaching qualification. After a period when she was working as an actress, singer and dancer, she obtained employment as a primary school teacher. She worked full time as a primary school teacher for the period from March 1984 to May 2004. She lived at home continually from 1987.

15 The plaintiff had some instances of ill health in her earlier years. She had what she described as "nervous breakdowns", one in 1974, and another in 1979. Each of them required her to be hospitalised for a period. The first required hospitalisation for a fortnight, the second for a period which does not emerge from the evidence. In each case, she returned to work after them. There is no other evidence in the case of her having any unusual medical difficulties.

16 There is evidence of her having been assessed by both a medical practitioner and a psychologist in 2004, at a time she was either leaving or contemplating leaving employment with the Department of Education, neither of whom could find that she suffered from anything in particular to which their specialties related. She has, however, apparently been treated by a psychiatrist, Dr Wade, periodically over the years. There is no medical evidence from Dr Wade to state what the treatment might be for, or how frequently it might take place.

17 She gave evidence in the case yesterday, and declined to give evidence today, in circumstances which I have outlined in a judgment earlier today: Cairns v Cairns [2006] NSWSC 364. She presented a demeanour of being a lady who was in some respects unusual. On the evidence, one could not say that it was anything more than eccentricity, with some flair as part of that eccentricity.

18 The solicitor who drew the testator's will gave evidence of a conversation he had with the testator at the time instructions were given. The testator said: "I'm worried about Diane and what will happen to her when I die. She is not well, and this is the only home that she has. She has enough money to be able to buy her two sisters' share of the house, and that is what I want to make sure in the will. George should get the business and the factory, as he has worked with me nearly all of his life. The business is not worth anything any more, all the foundries are closing down, and the work has gone overseas. You can't make any money out of the business, you barely make wages. George has really been running the whole business for years now, although I was still going in, and I want to make sure that he can have the business and the factory."

19 I should say, at this stage, that the testator's assessment of the business, and of George's contribution to it, is borne out by the evidence in this case. He is correct to say that George made a major contribution to his father's wellbeing by operating the business which provided the income during the years after his father was unable to have active involvement in the business, and by permitting the assets of the business to be the source from which expenses were paid for the testator's medical and nursing home treatment during the latter years of the testator's life. It is no surprise that the testator decided to give George a larger share than he gave to any of his other children.

20 The plaintiff, as I have said, lived at home nearly all her life. Even though the prospect of her purchasing real estate was discussed from time to time with family members, she never did so. She had an expectation, of which other family members were aware, that she would ultimately be able to purchase the house on her father's death.

21 This prospect of her purchasing the house on her father's death was something she discussed with her sisters in the context of her lending them money from time to time. It is undisputed that she lent Elaine a total of $28,000 and that Debbie received $36,000. The plaintiff, at the time of making some of these loans, said that they could be paid back at the time that she purchased the house, when her father eventually died, by coming off the share of the purchase price of the house that she was to pay to her sisters.

22 Now, there is some question about whether the entirety of those loans are still owing, because of matters concerning limitations and waiver, but the fact that the money was originally lent, on that basis, illustrates the common family understanding that Diane would, following her father's death, wish to buy the family home. Also, however, there was a mutual expectation that there would be an ultimate settling up of accounts between the sisters.

23 As well, Diane lent money to George. She lent him a total of $20,000 in two separate amounts of $10,000, one in May 2001, and the other in July 2001. They agreed that George would pay interest at bank rates on those amounts.

24 As well, the plaintiff lent $9,000 to her father to buy some Telstra shares, and that money was not repaid. George has undertaken the liability to repay that amount, though he says nothing about payment of interest on it, and I assume he does not intend to pay interest on that particular $9,000.

25 The plaintiff was able to save money during her lifetime. She tended to put it into very conservative investments like term deposits. At the time of the testator's death, she had almost $280,000 in such term deposits. Her savings have grown so that they now total around $307,000 of extremely liquid assets.

26 She was employed by the Department of Education as a teacher until May of 2004. At that time, she was given some office work in the Education Department. She resigned from that employment in the course of 2004. She received a severance payment which is taken into account in the $307,000 of liquid assets which I have listed. She did not join a superannuation fund until 1 July 1992. She has an entitlement to superannuation in the sum of $66,700 which will not become payable until she is 58, and that is on 25 April next year. Her only remaining assets of any significance are some shares in IAG, worth about $5,500, and a motor car.

27 If one adds together her liquid assets, and treats her superannuation entitlement as though it were payable now, and adds to those the value of the IAG shares, and the amounts which are admitted to be owing by George, Elaine and Debbie (including an estimate of $4,000 interest from George), one comes to a total of her assets of $433,500.

28 An agreement has been reached in the course of this litigation about an amount which is a minimum amount which is owing by each of Elaine and Debbie. That minimum amount is $9,300 from Elaine and $12,000 from Debbie. They each say that they have defences concerning waiver and limitations to any claim by the plaintiff that they should repay any more than that, and say that they have no liability to pay any interest on the amount which is due. Whether they are right in making that contention, is not something which is to be decided in this litigation. It is those admitted amounts that I have taken into account in arriving at $433,500 as the total of the plaintiff's assets.

29 Elaine and Debbie proffer to the Court an undertaking that they will permit the admitted amounts which they owe to the plaintiff to be credited to her in the context of an accounting for amounts which are due between the children of the testator concerning his estate on a distribution.

30 The plaintiff says that she has an emotional attachment to the house, feels very safe there and very much wants to stay there. She says that she does not feel she will be able to live elsewhere. No particular reason for that is given.

31 During the testator's lifetime, the plaintiff and the testator shared expenses connected with the home. They each contributed $200 to regular outgoings and that paid for food and some maintenance and small improvements. She paid no rent as such, however.

32 A State Valuation Office valuation was obtained following the death of the testator. It is dated 1 November 2003. The documentation, which is in evidence, is a one page document. It gives no reasoning whatever for the conclusion at which it arrived. It describes the property as being: "A single story double brick and tile Californian bungalow (built circa 1939) which is in good condition. This property was not internally inspected by the valuer concerned, under direct instructions from the client. The client advises that internal improvements include three bedrooms, a separate lounge and dining room, original kitchen, renovated bathroom, sunroom and laundry."

33 It appears that in fact the property includes two bedrooms and an additional room which might be used as a sunroom or a bedroom. It appears also that, rather than having a separate lounge room and a separate dining room, in fact it has a separate lounge and a combined dining room/kitchen.

34 The property was actually inspected by the another valuer, Mr Paul Austin, on 20 October 2004. He produced a formal valuation which contains a description of the property and a statement of the methodology by which he arrived at his value from comparable sales. He reports that, in various respects, the internal condition of the property is poor. Mr Austin's October 2004 valuation was $500,000.

35 Mr Austin produced another valuation in May 2005 using similar methodology which resulted in a valuation of $490,000. Today it is agreed that the property has a value of $520,000.

36 In my view, it is likely that the State Valuation Office valuation was an over valuation of the property at the date of death. The fact that it was made without an internal inspection, and its imprecision about the internal configuration of the house contribute to that. As well, when it is compared with Mr Austin's valuations, which have a proper methodology and expose their reasoning, it is considerably less persuasive than his valuations.

37 The assets of the estate consist of, as I have said, the Bankstown property, the Belfield property, and various other small assets. If one nets out the other small assets and the estate's liabilities, the amount that is distributable under the will to each of the daughters, apart from their share of the house proceeds, is $15,178.

38 The daughters of the testator, other than the plaintiff, each own their own homes. Elaine has retired and has a husband who is seriously ill. While Debbie is younger, and her husband is not ill, he has been having difficulties in obtaining work of recent times. He is endeavouring to work from home as a valuer without, at least at present, a great deal of success. Debbie continues to work part-time as a teacher. Elaine formerly was employed, but has now retired. While their assets each include an unencumbered house, their assets, beside the house, are not particularly significant. Elaine has some superannuation entitlement, but not an amount which would provide her with any spare money at all.

39 When the deceased died, if the plaintiff was to exercise the option to purchase the Belfield property at the Valuer General's valuation of $630,000, she would have been required to find $420,000 to buy out her sister's interest. She simply did not have that sum of money. Even now, her total assets, including treating her superannuation as though it were already received, are only $433,500.

40 In the circumstances, where the deceased had recognised a need to provide a means by which the plaintiff could purchase the house, while doing so in a way which was fair to his other children, his adoption of a Valuer General's valuation as a means of achieving that in his will meant that his intention miscarried.

41 If the plaintiff were to be able to purchase her sisters' interest in the property, on the basis of the agreed valuation of $520,000, she would need to find $346,666 to pay them out. That is also a sum which she cannot afford to pay right now, without collecting the debts which are owed to her by her siblings, and without receiving her superannuation entitlement.

42 If she were to buy out her sisters' interest in the property, she would be entitled to a first home owners grant of $7,000 which would also defray the costs somewhat. If the purchase was at $520,000, there would be the concessional rate of stamp duty which first home buyers receive applicable on the purchase, although a small amount of stamp duty would still be payable.

43 In my view, the plaintiff was left without adequate provision for her maintenance. Under those circumstances, the first limb of the Singer v Berghouse (1994) 181 CLR 201 test is passed.

44 That then raises the question of what provision ought to be made. The provision which ought to be made is one which would do the minimum damage to the general structure which the testator thought was appropriate in his testamentary dispositions, while still giving the plaintiff a realistic opportunity to buy the house. While there might be room for wondering whether this house is really the accommodation most appropriate for the plaintiff, what she could buy with the 1/3 of the sale price of the house (minus selling expenses) that she would receive under the will, together with her other assets, would be unlikely to leave her better provided for than would giving her the option to buy the house, at its market value. If in her later life the house demonstrates itself to be inappropriate, she can sell it. Her desire to buy the house, known to her father and siblings for years, and acted on by them, tips the balance, in my view, so that an option to buy the house at market value is an ingredient in making proper provision for her.

45 I should mention here what the situation is concerning the costs in the proceedings. The plaintiff's total costs of the proceedings are estimated to be of the order of $40,000, of which a little over $27,000 remains unpaid. The first defendant's costs are estimated at a little over $22,000. The second and third defendant's costs are of the order of $53,500.

46 The second and third defendants started their own Family Provision Act 1982 proceedings, but those proceedings were eventually discontinued on the basis that the second and third defendants would pay their own costs, and the executor's costs would come out of the estate. There is an extraordinary letter from their solicitor dated 4 October 2005 to the solicitor for the first defendant, which says: "Our clients brought their claims to resist that of their sister and to co-operate with the Defendant in upholding the Will of the deceased. This remains their position."

47 I should say at once, that that tactic, of bringing proceedings as a way of bringing extra pressure to bear upon a litigant, is not one to be encouraged. The way in which Family Provision Act 1982 proceedings ought to be conducted is well known, and the principles for it are set out in the judgment in the Court of Appeal, in Vasiljev v Public Trustee [1974] 2 NSWLR 497, at 503-4. It is usually for the executor to put forward any material which beneficiaries wish to have put forward in connection with the defence of a will.

48 Of the $53,500 total costs of the second and third defendants, about $41,000 is estimated to be attributable to these proceedings, rather than to the proceedings which the second and third defendants bought themselves.

49 George's financial position is considerably more stable than that of any of his sisters. Under the will, he has the factory building valued at $620,000 to $680,000 and the goodwill of the business. The business is one which yields him about $25,000 per annum nett. As well, however, he has been living at the factory for some years, and continues to do so. He has been using the estate's motor vehicle. He has some assets, besides those which he was given under the will. He has a house at Glenfield, which he estimates as being worth $340,000 which is rented at $180 per week. He has some shares, about 10,200 Telstra shares, which are worth about $35,000 and some CBA shares which were worth about $18,700 at a previous time, and have probably gone up since then. That would give him shares worth at least $55,000. He has about $57,000 in a CBA bank account.

50 I have earlier said that the contribution which George made to his father's well being is one which made readily understandable the fact that his father gave him considerably more of the estate. However, this testator was in a situation where he was faced with more claims on him than he had assets to meet. It was, as is unfortunately common with this type of case, necessary for everyone's claims to be discounted a little from the value that they would have, if there had been more money to go around, so there could be fairness to all.

51 In my view, the appropriate order which should be made in favour of the plaintiff is one which would require the executor to provide a means which was actually practicable of the plaintiff being able to obtain ownership of the house.

52 I will indicate the kind of order which seems to me, at present, to be appropriate, though I will invite comments from counsel as to whether there are any at present unforeseen practical difficulties in the implementation of the principles underlying it.

53 If the plaintiff were to have the option to buy the real estate at two thirds of its agreed value of $520,000, she would need to purchase it for $346,666. She still does not have enough money to be able to exercise that option. However, I do not think that the making of a proper provision for her necessitates that she should be given more money to enable her to exercise the option and pay the full purchase price immediately. Rather, the payment of the purchase price should be by instalments, with those instalments fixed by reference to what the plaintiff can afford.

54 The type of order which seems to me in principle appropriate is that the plaintiff be given an option to buy the Belfield real estate for a price of $346,666, such option to be exercisable by notice in writing to the executor on or before 30 June 2006, with payment of the purchase price to occur as to $250,000 within 28 days of the date of exercise of the option. I would accept the undertaking which Elaine and Debbie offer. $21,300 - which is the total of the admitted loan amounts due from Elaine and Debbie - of the purchase price of the house to be paid at the time of finalisation of accounts of amounts due between the children of the testator concerning his estate on a distribution, and the balance of $75,366 is to be payable by, say, 31 May 2007. That latter date should, on present indications, give enough time for the plaintiff's superannuation to fall in - and if there is doubt about that, I would extend that date to one by which she should have received the superannuation.

55 It would also be appropriate for the order to recognise the reality, which has already occurred, that she has been residing in the house rent free, and also to give her a right to reside in the house rent free, subject to her paying all costs for rates, insurance, and out-goings of the property until such time as the purchase is completed if the option is exercised, or until 30 September 2006 if the option is not exercised. It would, it seems to me, be necessary to leave open ended in this fashion the period in which there was a right of residence if the option is exercised, because the accounts may possibly take longer than 30 June 2007 to finalise, although one would hope that that was not so.

56 The finalisation of accounts, I make clear, does not include the determination of whatever extra amount beyond $21,300 might be due to the plaintiff from her sisters, because that is not an amount which, if it is due at all, is due between the children of the testator concerning his estate.

57 I would also make the plaintiff's option one which was conditional upon her payment of an amount of $20,000 to the second and third defendants jointly. That amount is one which I would make payable by 31 December, 2006. The reason for imposing that condition is that the plaintiff's bringing the proceedings has, to some extent, occasioned a need for the second and third defendants to incur costs, and in so far as those costs are ones which are not attributable to a tactical decision to start separate proceedings, the second and third defendants ought not be out of pocket concerning them, and the sum of $20,000 is what I would assess as the appropriate way of making that allowance.

58 In the event that the plaintiff did not exercise the option, she would receive one-third of the net proceeds of sale of the house.

59 I would also give to the plaintiff, to recognise the very tight cash position which she will have after paying for the house and meeting her own costs, an additional legacy of $60,000 which is to be charged on the real estate passing to George, and payable by 30 September 2006. The effect of fixing that date will be to put the plaintiff into funds to pay both her own costs, and the $20,000 she is to pay to her sisters. That timing of events should ensure that the burden of any order does not land on the plaintiff personally, or on her sisters.

60 An obligation of the second and third defendants to pay some costs to their own lawyers has been recognised, in the condition concerning payment of the $20,000 to them, which is imposed upon the exercise of the option. I would make no separate order for the payment of the costs of the second and third defendants. The costs of the first defendant can be borne on an indemnity basis from the estate.

61 I would add a provision requiring interest to be paid on any sum, which is not paid by the due date, at a rate of interest fixed by the Rules for legacies. There is no separate order for the plaintiff's costs. These provisions for the plaintiff are in lieu of all other provision for her by the will.

62 Counsel should bring in Short Minutes.

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