FIORENTINI v O'NEIL

Court of Appeal (NSW)|1998-10-12|Before: Mason P, Handley JA, Cowdroy AJ

For the reasons given, the appellant has demonstrated error in the trial judge's assessment of the size of actual and notional estates available (after allowing for costs) to bear the burden of a proper provision in the respondent's favour. The parties join in asking this Court to determine the matter afresh, and they have put before the Court updated material to enable this to be done.

Not all of this fresh material is relevant if, as we would hold, the appellant should be held to the stance she adopted at trial. She conducted the case below on the basis that she advanced no claim of a financial nature in competition to the respondent's position. It would be unjust to allow departure from this position at this stage in the proceedings. Moreover, the additional material filed in the appeal shows that the appellant's financial position remains a comfortable one. Her financial position as at the appeal stands at approximately $1.8m, represented by investment property interests, a sizeable share portfolio and other invested savings.

In elaboration of (a), we have an initial difficulty in determining the basis upon which a legacy of $110,000 was thought appropriate. The learned judge merely stated:

Taking all the circumstances into consideration, the plaintiff, in the absence of receiving the business, is entitled to a legacy out of the estate of the deceased. The plaintiff's home, which is modest, is heavily encumbered and is in need of repair, although the evidence does not quantify the amount of expenditure required. Had the deceased responsibly considered his testamentary obligations and weighed the competing claims he would have made appropriate provision for the plaintiff.

It is well nigh impossible to spell out the reasons justifying a particular sum and we are not saying that the judge erred in failing to do so. But the paucity of reasons added to the objective facts convinces us that $110,000 was an unduly generous provision in the light of the evidence at trial. Such a legacy represented well over one half of the available estate if the total of actual and notional estate is $260,000 and the costs of a 6 day hearing have, to be deducted.

If the judge intended to provide a legacy sufficient to allow the respondent to discharge the existing mortgage over her family home ($100,000 principal outstanding at trial) with a small additional sum for house repairs, this was unduly generous in the circumstances. It may be appropriate in some cases, although it cannot generally be said that a parent has an obligation to provide an adult child with a home. Here it was relevant that $24,801 of the mortgage sum had been advanced (long after acquisition of the home) to enable the respondent and her husband to purchase a motor cruiser whose value at trial was $40,000. Doing the best we can in resolving what will probably turn out to be a purely historical issue, we would indicate that had the evidence stood as it did at trial $80,000 would have been an appropriate provision (although, as will be seen, it is not the figure which this Court should now award). In doing so, we also have regard to our comments about costs which follow later in this judgment.

As to (b), this was a ground of cross appeal. In our view the primary judge should have ordered that the legacy bear interest from a date one month after his order in a case where well over a year had elapsed since the death of the

deceased. There was nothing to indicate that the making of an order would be the end of the litigation, as events have proved. If interest had been ordered, then the pendency of this appeal would not have operated to the prejudice of the respondent in the event of the status quo being maintained during its pendency. Again it should be recorded that it is unclear whether this matter was raised below.

We return to the adjudication of the respondent's claim in the light of a correct understanding of the size of the available estate (actual and notional) and of the relevant competing claims.

The assets now owned by the respondent and her husband, and their joint liabilities, are estimated as follows:

Two-thirds interest in home at Clareville (one-third

being owned by the respondent's grandfather) 266,666 Bank accounts 1,239 Motor vehicle 3,000 Furniture and household effects 6,000 Motor cruiser 37,500 Mr O'Neill's superannuation entitlement (gross) 26,150 Respondent's superannuation entitlement (gross) 2,137 Total: 342,692 LIABILITIES

The respondent owes over $60,000 with respect to legal costs. Much of them are payable out of the estate pursuant to the orders made below.

The reasons which moved Cowdroy AJ to order a legacy in favour of the respondent remain effectively unchallenged. They are summarised in the numbered paragraphs set out on p9-p10 above. And the respondent's financial position has worsened since trial. The respondent has ceased employment as a teacher consequent upon the birth of a third child in March 1998. She currently receives a gross weekly income of about $250 for bookkeeping work plus family allowance of $35. Her husband's gross weekly income is about $636. This income is currently absorbed in family expenses (about $25 per week being spent in relation to the boat). The expenses include $335 in mortgage payments.

The respondent's home (owned as to two thirds jointly with her husband and as to one third by her grandfather) remains heavily encumbered and in need of repair. The family is not in exiguous circumstances by any means, but neither is there any real surplus of income after the discharge of the ordinary living

URJ FIORENTINI v O'NEIL (Mason P, Handley JA and Fitzgerald AJA) 9

expenses of an expanding family. Fiorentini Enterprises Pty Ltd has been ordered to pay almost $19,000 to the respondent's husband in respect of wrongful dismissal and outstanding long service leave entitlement and costs. The insolvency of the company means that these orders will remain unsatisfied.

It remains the case that the respondent's claim is based not only on the filial and familial relationship with the deceased but upon present need that stems, in part, from financial sacrifice in the deceased's favour made by the respondent and her husband. That sacrifice was no doubt itself a reflection of the filial and familial relationship between the respondent and her father. Having regard to the assets at his disposal and the relative comfort (financially speaking) of his widow, the deceased ought to have made provision in the respondent's favour.

The difficult issue is to determine the size of appropriate provision. This turns largely upon the impact of the burden of costs of the proceedings on the available estate.

The Court may order that the costs, charges and expenses of and incidental to proceedings under the Family Provision Act in relation to the estate or notional estate of a deceased person be paid out of the estate or notional estate, or both, in such manner as the Court thinks fit (s33(1)). The special provisions in s33(2) and s33(3) relating to applications by those who are "eligible persons" by reason only of para(c) or para(d) of the definition may be left aside in the present case. However, s33(3) also stipulates generally that the Court shall not award costs in favour of an applicant just because he or she has been successful in the application.

In the ordinary case, a successful plaintiff will be awarded costs out of the estate and the defendant will be awarded costs on an indemnity basis out of the estate. However, the size of the estate and the conduct of a party may justify a departure. The discretion conferred under s33 is broad. Either party, including the defendant legal personal representative, may be deprived of all or part of his or her costs if the circumstances justify it (Re Kennedy (Deceased) [1920] VLR 513; Re Klease [1972] QWN 44; Re S J Hall (1958) 59 SR (NSW) 219 at 228; Heuston v Barber (1990) 19 NSWLR 354 at 363).

Leaving aside the impact of unaccepted settlement offers, the usual costs order may be modified if the Court is of the view that the litigation has been prolonged unnecessarily. The Court should set its face against litigation in which an estate is unnecessarily consumed in costs. Neither party should assume that the usual order will follow as of course. Both plaintiffs and defendants should be encouraged to make open offers as early as practicable in the litigation. The plaintiff who fails to do so promptly may find that none or only part of his or her costs will be ordered to be paid out of the estate. Of course a defendant is also well placed to make open offers and should do so in cases (like the present) where only the quantum of the plaintiffs claim is seriously in issue.

If the defendant is entitled to the residue of the estate, the litigation is really inter partes, if only for the practical reason that any order for costs out of the estate is effectively an order that the defendant pay them. This may be relevant to the exercise of the costs discretion. The possibility of extravagant or wasteful conduct by a plaintiff in such a situation is the very reason why s33(3) stipulates that success does not guarantee an order for costs. Conversely, the defendant's

conduct in such litigation may preclude the defendant from seeking to reduce an otherwise proper order in favour of the plaintiff because the estate is depleted by costs.

There is also no reason why the costs order which might otherwise be made could not be displaced in a proper case in consequence of an unaccepted "Calderbank" offer made by either plaintiff or defendant. Cf Supreme Court Rules, Pt52A r22. In a case such as the present, where the litigation is effectively inter partes, there is no reason why these principles should not apply with full force against a defendant. But even where the defendant lacks a substantial interest in the estate, it may be appropriate to leave that party bearing out of his or her own pocket all or some of the costs of the proceedings if it appears that it was unreasonable to have rejected a suitable offer from the plaintiff. At the very least, the onus should rest on the defendant to demonstrate that unreasonable conduct flowed from express instructions from those interested in the estate before the usual consequences of rejecting a Calderbank offer are applied.

The present is a classical example of how family provision litigation can run hopelessly off the rails. It does not appear to have been seriously disputed at trial that the respondent was entitled to "an appropriate legacy". And it was established virtually at the outset of the trial that the deceased's widow was not advancing her financial needs as a basis for diminishing whatever proper order should be made in the daughter's favour. It beggars belief that the case went beyond one day in these circumstances, let alone for six days. At whose door should the responsibility be laid? Regrettably it is difficult to apportion blame at this stage of the proceedings. The parties appear to have acquiesced in the trial judge making the usual order as to costs. At the very least, neither complains of these orders in the appeal.

This said, we do not think that the appellant can now complain that the estate is so denuded by the impact of costs that an otherwise proper order should not be made in the respondent's favour. As the legal personal representative, she knew or ought to have known of the true impact of the litigation upon the estate. It was her obligation to inform the Court about the quantum of costs and its impact upon the fund to meet an otherwise appropriate legacy in the respondent's favour. The respondent could at any time in the litigation have been put at risk as to costs by the making of an open offer to submit to an order for a particular legacy. In a situation where the appellant was the residuary legatee who had made the concession mentioned above, the onus lay squarely with her to take control of the litigation, or alternatively to conduct it in such a way as to put the respondent at risk as to costs or otherwise. Failure to have done so means that it now lies ill in the mouth of the appellant to contend that the available fund is so diminished that an otherwise appropriate legacy in the respondent's favour should be reduced by reason of the fact that its payment would leave the widow without otherwise appropriate provision out of the actual and notional estate passing to her.

These remarks have been stated in terms of the conduct of the parties. Of course parties are usually represented by solicitors and barristers. The conduct of the lawyers is attributed to the client for better or for worse. The Court is seldom able to ascertain whether waste or delay was attributable to the lawyer or to the client upon whose express instructions the lawyer acted.

Interest Where provision is ordered out of an estate, the Act provides that the Court

may specify that the whole or any part of a sum shall bear interest at such rate as the Court thinks fit for such period as the Court Thinks, fit (s11(1)(d); see also

URJ FIORENTINI v O'NEIL (Mason P, Handley JA and Fitzgerald AJA) 11

s15(3)). To avoid confusion, and preclude debate about the status of a lump sum provision as a legacy, it is advisable that the Court should address the question of interest expressly. Cf Davern Wright, Testator's Family Maintenance 3"ed, 1974, p162-p164.

It was submitted in argument, very much en passant, that s95 of the Supreme Court Act might apply to certain orders for provision under the Act. Without expressing a definitive view, we are inclined to reject this proposition. S95(1) provides that where judgment is given or an order is made for the payment of money, interest shall, unless the Court otherwise orders, be payable at the prescribed rate from the date when the order takes effect on so much of the money as is from time to time unpaid. $14 of the Act provides that an order for provision out of the estate of a deceased person shall, except in so far as the Court otherwise directs, take effect as if the provision has been made:

(a) where the deceased died leaving a will - in a codicil to the will; or (b) where the deceased died intestate - in a will of the deceased person.

Nevertheless, an order for family provision remains in essence a court order. This said, we incline to the view that the mandatory terms in which s95 of the Supreme Court Act is expressed are displaced by the discretions to order interest under the Act. The discretion under s11(1)(d) requires the taking of a positive step by the Court. Indeed, s15(3) goes further in relation to what its side note describes as consequential and ancillary orders by stipulating that interest is not payable unless the Court specifically provides that the money shall bear interest. In these circumstances it is difficult to see that there is any room for s95 to operate.

Until 1 September 1998 the prescribed rate of interest on a legacy was 8% per annum (Wills Probate and Administration Regulation 1993, reg7). Since then it has been 6% (Wills Probate and Administration Act Regulation 1998, reg7). There is of course no reason why the Court is restricted to ordering interest at the rate applicable to legacies. The discretions under s11(1)(d) and s15(3) are not so confined. There is no reason why a Court in the exercise of its discretion to award interest under the Act could not choose the prescribed rate appropriate to a judgment or order as applicable under s95 from time to time.

In a situation where the "executor's year" has long passed and where the appellant has had the benefit of the distributed estate, interest payable at least prospectively from a date shortly after the date on which a proper order should have been made below is appropriate. This should be at the rate applicable to legacies from time to time as distinct from any higher rate, having regard to the fact that the appellant has put some of the money received from the estate back into the failed company.

In the light of the foregoing discussion, we would summarise the position facing this Court as follows:

In consequence of the death of the deceased, the appellant received the benefit of actual estate of $107,000 and notional estate of $153,000. With the exception of $25,000 realised upon the sale of the land in Euchareena in August 1994 she has had the benefit of this money in cash since the death of the deceased on | August 1993.

However, she has had to outlay her own legal costs. Those costs must be taken to have been properly incurred, because there is no cross appeal against the trial judge's order as to costs. The appellant's estimated costs and disbursements of the trial were over $57,500.

Taking into account the considerations stipulated in s27(1), it is appropriate to make an order designating property as notional estate. We are satisfied that the estate of the deceased is insufficient to allow the making of provision that should be made (cf s28(1)(a)). While the appellant's claims on the deceased's bounty are far from minimal, her concession as to the priority of the respondent in relation to financial need means that no injustice is done by designating such property as is sufficient to meet an otherwise proper legacy. But what is proper must take into account the size of the distributable estate as well as the appellant's own claims stemming from the contribution she herself made, materially and otherwise, during the lifetime of the deceased to his welfare and estate (cf s27(2)(e)). An order designating notional estate should not be made in relation to property in excess of that necessary to allow the making of such provision as should be made (cf s28(2)). The fact that the estate has been distributed to a party does not preclude a designating order (s24). Indeed, the order may designate any property held by or on behalf of the party, whether or not that property is the property distributed (ibid).

The findings in the respondent's favour, summarised in the numbered paragraphs set, out at p9-pl0 above, justify provision being made in the respondent's favour out of the estate. Her claims are heightened by the worsening of her financial position since trial. The real question is the size of an appropriate legacy. In Eggler v Mitchellmore (CA unreported 11 November 1992) Sheller JA adopted the remarks of Cleland J in Re Harris (1936) SASR 497 at 501:

Proper maintenance is (if circumstances permit) something more than a provision to keep the wolf from the door - it should at least be sufficient to keep the wolf (from pattering around the house or lurking in some outhouse in the backyard - it should be sufficient to free the mind from any reasonable fear of any insufficiency as age increases and health and strength gradually fail.

We would order that a legacy of $90,000 be paid with interest at the rate prescribed for legacies from time to time, to date from 17 January 1997, one month after the date of the orders appealed from.

Because the Court is not confined in the present case to designating property distributed from the estate (see s24), and because there is some uncertainty about the precise form in which the appellant holds the items of notional estate derived in consequence of the deceased's death, we propose designating an asset of the appellant which she undoubtedly still owns. In case there is air difficulty, we would reserve liberty to apply.

The costs order at trial should stand. There should be no order as to the costs of the appeal and cross-appeal. Each has succeeded, but only in part.

We make the following orders:

Appeal and cross appeals allowed.
Set aside ol made by Cowdroy AJ
In lieu thereof make orders that: (a) the respondent receive a legacy of $90,000. (b) the legacy is to bear interest as and from 17 January 1997 at the rates applicable to unpaid legacies from time to time.

URJ FIORENTINI v O'NEIL (Mason P, Handley JA and Fitzgerald AJA) 13

(c) designate as notional estate of the deceased the appellant's interest in the property at 93 Cammeray Road, Cammeray such interest to bear the burden of the said legacy and of the costs order in favour of the respondent at trial (if necessary).

5 (d) the appellant has liberty to apply in relation to the designating order, and the respondent has liberty to apply for further orders designating notional estate if necessary.

Costs order at trial is to stand.
Each party to bear own costs of appeal and cross appeal. Counsel for the appellant: G C Lindsay SC/ J E Armfield, Solicitors for the appellant: Lloyd & Lloyd Counsel for the respondent: P Hallen SC Solicitors for the respondent: Barkus Pearson

Re Kennedy (Deceased) [1920] VLR 513; Re Klease [1972] QWN 44; Re SJ Hall (1958) 59 SR (NSW) 219; Heuston v Barber (1990) 19 NSWLR 354, applied.

At a glance

Court

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Before

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Judgment (53 paragraphs)

Parties

Cases Cited (6)