Extent of Proper Provision for the Appellant
136 Counsel for the Respondents correctly points out that the vast bulk of the assets of the Deceased at the time of his death were accumulated through his own efforts and through a gift from his family. In my view, that is of limited significance in deciding what is the extent of proper provision that the Deceased should have made for the Appellant.
137 He also points to the significant benefits that she has received, including the superannuation, the Volvo, some of the rental derived from the Lane Cove unit, and the practical benefit of sale of the Peugeot that had been owned by the Company. While she has had the practical benefit of all those assets, any benefit that she continues to retain from them is only to the extent that they might make up part of her present net assets. In considering, now, whether she has been left without adequate provision, it is of little significance that she has received some benefits in the past that derived from the Deceased, when it is not suggested that she has wasted or squirreled them away, and the present value of those benefits is fully reflected in her net assets.
138 In cross-examination, the Appellant did not rule out the possibility that she might, if she had control of the Pinaroo Place property, move elsewhere (including to Queensland), in which case she might either rent the Pinaroo Place property, or sell it.
139 The Appellant was asked about whether she had any intention to remarry at some point or to form another long-term relationship. Her answer (on which she was not further cross-examined, and that has some inherent measure of plausibility) was "I have not ruled it out but it is very difficult when you have three small children to go out, for one thing, and to meet somebody." When asked about the effect any such future relationship might have, and in particular on whether there was a risk that a falling out between herself and a possible future partner could dilute her interest in the family home "Well, I would take every measure for that to happen when the relationship started. They are always my children and will always come first and I will always look out for them first before anybody else."
140 The Appellant's case at the hearing had been that she should be awarded the entire estate, or else the Pinaroo Place property free of mortgage. In her cross-examination part of the evidence she gave was:
"A. … If I cannot sell it or if I cannot borrow money off it, I cannot build my future to build more wealth for the kids when they are older. If I don't have assets it is very hard to build but if you have an asset to start with, it is a lot easier to start wealth.
Q. Arising from what you have said there, in coming back to a point I raised earlier, in attempting to build that wealth it is possible investments may not go as planned; do you agree with that?
A. I do, but that was possible when Helmut was alive; we were working the best we could with what we had. No one can tell what is going to happen with investments or anything else obviously from the share market.
Q. That is exactly right. In borrowing money from the property and applying it somewhere else, you could very easily dilute the interest either you or any other person may have in the family home?
A. Borrowing money would only be enough to cover the assets that were bought."
141 The executors have informed the Court that, if the Court is minded to make an order whereby some of the estate assets are held on a trust that is partly for the benefit of the Appellant and partly for the benefit of the children, they are prepared to act as trustees without calling for any remuneration or reimbursement of expenses associated with that trust. They make clear that they retain their claim to reimbursement of expenses that they have already incurred in carrying out administration of the estate.
142 In Luciano v Rosenblum (1985) 2 NSWLR 65 at 69-70 Powell J (as he then was) said:
"It seems to me that, as a broad general rule, and in the absence of special circumstances, the duty of the testator to his widow is, to the extent to which his assets permit him to do so, to ensure that she is secure in her home, to ensure that she has an income sufficient to permit her to live in the style to which she is accustomed, and to provide her with a fund to enable her to meet any unforeseen circumstances."
143 That "broad general rule" has been approved by the Court of Appeal in O'Loughlin v O'Loughlin [2003] NSWCA 99.
144 It has been held that the principle is equally applicable to the position of a person who occupies the position of a de facto wife: Re Marcuola-Bel Estate; Marcuola-Bel v Thi Ly Tran [2005] NSWSC 1182 at [31]. Inevitably, when the statute calls for the court to make a decision about what is the appropriate provision in the circumstances of the particular case before it, the principle is not one of immutable application: Marshall v Carruthers [2002] NSWCA 47.
145 The Deceased had responsibilities to both the Appellant, and his children. The Appellant's need for income support, for her own benefit and that of the children, in the several years after his death was such that she required all the available assets of the estate other than the Pinaroo Place property.
146 That leaves the question of what provision should be made concerning the Pinaroo Place property. Conferring on the Appellant and the children rights that were in the nature of rights of residence in a particular property could not adequately provide secure accommodation for them, because it was readily foreseeable that circumstances might make it desirable for them to live elsewhere. However, provided the Appellant had flexibility in the ordinary course of events to choose the living arrangements that were appropriate to herself and children, in my view conferring on her full title to the Pinaroo Place property was more than was needed to make adequate provision for her. There should be provision for more than one change of residence. With the objective of keeping the capital invested in a way that is secure but still likely to have capital appreciation, it is desirable to bias the order to favour keeping it invested in real estate. However, as a way of allowing for the contingency of unexpectedly large expenses of maintenance of the children, there should be facility to move to less expensive housing and use the resulting spare money for maintenance of the children. Concerning that at present unlikely event, consultation and co-operation between the Appellant and the Trustees would be required. I see that as being different to the Appellant being able, in the ordinary course of events, to choose where the family lived.
147 I would accept the Appellant's evidence that, in the event that she were to enter another relationship, she would endeavour to protect the equity in any real estate that she had, for the benefit of the children. However, if the children are to have a secure source from which capital provision is eventually made for them, it would be undesirable for the rights of the Appellant and the children in that fund to be mixed with those of another person. I have some concern, also, about the possibility, inherent in her evidence quoted at [140], that she might seek to borrow against the real estate for the purpose of making investments. Such borrowing brings with it a risk of compromising the security of accommodation that it would be a prime objective of a wise and just testator to provide for his family. It is foreseeable, however, that there might be expenses of a personal or family nature, such as if there were to be a serious illness of the Appellant or one of the children, that might necessitate the mortgaging of the house. A wise and just testator would not inhibit that occurring.
148 In fashioning an order under the Family Provision Act, a court seeks to alter the provision that the testator has made to the minimum extent that is necessary to make proper provision for an eligible applicant. To the extent that it is possible for capital provision to be made the children, I see no need to alter the date at which the Deceased decided it was appropriate for the children's entitlement to capital provision to vest. In the presently likely event that Georgia survived to 21, and if that remains the date at which capital entitlement of children vests, the vesting will take place in November 2025. If the children were to receive a significant capital payment at that time, in an amount that was secured by the housing the Appellant then occupied, it would be necessary for the Appellant either to have saved enough by then to make the payment from her own resources, or else to undertake a mortgage obligation. At that time the Appellant will be aged 54. Even given that she has skills that are likely to be readily marketable, and by 2025 she is likely to have had some years in which she is not subject to the same inhibitions that she is now subject to in exercising her skills, that is fairly late in life for her to be taking on a significant mortgage obligation. The likelihood is that the cost of maintaining the children until they leave school or such tertiary studies as they might undertake will not be less, in real terms, than it now is, and may well be more. Even if the Appellant is able to take part in the workforce to a greater extent once the children are somewhat older, the ongoing expenses associated with the children will inhibit her ability to save. These factors limit, in my view, the extent to which it is practicable to make a provision that leaves the children with gifts that are as large as those that the Respondents submit are appropriate.
149 In considering the size of the provision that is made for the children, it is appropriate to bear in mind that the effect of applying Locke King's Act is that the Pinaroo Place property was subject to mortgage obligations totalling nearly $320,000 at the time of the Deceased's death. Thus, at the time of death, the value of the equity in the property that the will left to the children was of the order of $580,000. That amounts to somewhat less than $200,000 per child. Any consideration of the extent to which a court order results in the children receiving less than the will gave them needs to be made with that figure in mind. The submission made by the Respondents, that an order the court might consider, if it made any order at all, was to provide the children with an indexed $225,000 each, is in my view quite unrealistic. It does not make adequate provision for the Appellant, and actually increases the gift to the children beyond that made by the will.
150 YOUNG JA: I agree with Campbell JA, but wish to add the following additional matters.
151 In any Family Provision Act proceeding, it is a fundamental requirement that one first work out: (a) what are the assets of the deceased's estate; and (b) how those assets devolve on his or her death. For the purpose of (b), one must construe the will and one must do this before one can proceed to consider whether the applicant has been left without appropriate provision; see Langley v Langley [1974] 1 NSWLR 46.
152 Unfortunately, in the instant case, it would seem that insufficient attention was paid by the lawyers for both sides as to what the will actually meant.
153 I agree with Campbell JA that as it would seem that on any of the major answers to the problems of construing the will, the basic result is much the same, there is little to be gained in seeking further submissions from counsel on construction issues.
154 The gift in paragraph 4 of the will strongly appears to be an executory devise. Because of the Statute of Wills of 1540, executory interests, ie, those interests which flouted the old common law rules as to the limitation of estates could be created without the intervention of uses. The fact that it was not recognised illustrates the weakness in not teaching the pre-1919 property law in law schools.
155 I have doubts as to whether s 36B of the Conveyancing Act is applicable because of cases such as Barclays Bank Ltd v Gillett [1950] Ch 102.
156 Had it been vital, I would have wished to look more closely at how far a gift to minor children who are under the guardianship of a mother allowed the mother to occupy the children's house without liability to account. There is, to my mind, a fair argument that this is the law; see Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417.
157 The costs quoted seem far too high for a relatively simple case even one involving a failed mediation. A fortiori where the lawyers seemingly have not considered the construction of the will at the proper depth. Any costs assessor should look at the proposed costs with great care.
158 HANDLEY AJA: In this appeal I have had the advantage of reading the reasons for judgment of Campbell JA and those of Young JA in draft. I agree generally with their reasons, and on 22 December 2009 I joined with them in making orders which disposed of the appeal. This enables me to briefly express my reasons for joining in making those orders.
159 There is no need to repeat the facts which are fully set out in the reasons of Campbell JA.
160 The primary Judge found that, at the date of trial, the residuary estate which passed to the widow was worth some $211,453. This finding involved a number of factual errors recorded by Campbell JA (para [50]), and the primary Judge overestimated the value of the widow's own assets by approximately $100,000 (paras [55] -- [58]).
161 It seems that all parties below overlooked the effect of s 145 of the Conveyancing Act (Locke Kings Act) in relieving the deceased's residuary estate of the burden of the first mortgage of $30,000 over the family home at 2 Pinaroo Place Lane Cove (the Lane Cove Property) and of its proper proportion of the second mortgage (paras [108] -- [115]). These adjustments substantially increase the size of the residuary estate and diminish the value of the Lane Cove property passing to the children.
162 Under the will the children are entitled to the Lane Cove property but there are no other assets in the estate which can be used to pay the debts under the first and second mortgages, maintain the property and meet the outgoings.
163 The widow will therefore have to use her own capital, including her interest in the residuary estate and her earnings, to make the payments under the first mortgage, maintain the house, pay the outgoings, and keep the family going. Currently her net earnings are not sufficient for this purpose and she has had to draw on her limited capital.
164 The executors have used $96,600 of their own funds to pay the balance of the debt due under the mortgage on the Rawson Street property, in meeting a call on the Telstra shares, and in payments under the mortgages on the Lane Cove property (para [78]). They are entitled to reimbursement for some of this amount from residue, and for the balance from the Lane Cove property devised to the children. If the executors cannot otherwise be reimbursed for their expenditure on the Lane Cove property they would be entitled to sell it in order to pay those executorial and administration expenses.
165 Although for practical reasons the widow would be compelled to maintain the Lane Cove property until the youngest child attains 21, and to maintain the children from her own assets and earnings until they are self supporting, she will not be entitled to reimbursement for these expenditures from any source at any time.
166 She would however be entitled to reimbursement for the amount of approximately $300,000 for the share of the second mortgage apportioned to the Lane Cove property but it is not clear that she would be entitled to interest on this amount during the minorities of the children.
167 On present indications when her youngest child attains her majority the Lane Cove property will be sold, and the widow will be left with very little in the way of assets apart from the benefit of her charge pursuant to s 145 of the Conveyancing Act. This amount would not be nearly sufficient, even with interest, to enable her to purchase a residence of her own without incurring a substantial mortgage debt.
168 In these circumstances the Judge's "jurisdictional" finding that the widow had not been left without adequate provision for her proper maintenance cannot be supported.
169 This Court therefore had to exercise the discretion under s 7 of the Family Provision Act to determine the provision that should be made for the widow out of the estate.
170 I agree with the reasons of Campbell JA (para [145] -- [149]) for making the orders for further provision for the benefit of the widow that the Court pronounced on 22 December 2009.