Large v Higham

[2010] NSWSC 560

Supreme Court of NSW|2010-05-28|Before: Slattery J

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Court

Supreme Court of NSW

Decision date

2010-05-28

Before

Slattery J

Source

Original judgment source is linked above.

Judgment (135 paragraphs)

[1]

CITATION : Large v Higham [No 2] [2010] NSWSC 560 This decision has been amended. Please see the end of the judgment for a list of the amendments.

[2]

One-half of the proceeds of sale of the property identified in these proceedings as "the Sylvania Waters property" be designated as notional estate ("the notional estate") to the extent necessary to satisfy the following orders. 2. The second defendant pay to the plaintiff out of the notional estate the sum of $400,000 such amount being in lieu of the provision for the plaintiff contained in the will. 3. Reserve questions of the payment of interest on the order for provision in the sum of $400,000 and direct the parties to exchange submissions within 7 days as to the rate and period of interest that any party contends should be ordered to be paid pursuant to Family Provision Act s 11(1)(d) on the sum. 4. In lieu of the provision made for each of them in the will of a proportion of the residuary estate of the testator, the remaining beneficiaries shall receive the residue of the estate in the following proportions: Maria: 4/7ths Carole: 2/7ths Rhonda: 1/7th And the will of the testator will be amended to reflect those changed proportions. 5. The second defendant will pay the plaintiff's costs of the determination of the issue of the designation of the Sylvania Waters property as notional estate and the estate will pay all the plaintiff's other costs. 6. Oliver Scott receive out of the estate, in lieu of the provision made for him in the will, the sum of $52,970. DECISION : 7. Oliver Scott's costs to be paid out of the estate on the indemnity basis. 8. The second defendant's costs are to be paid out of the estate on the ordinary basis in respect of (a) taking instructions and preparing an affidavit in the proceedings, (b) keeping the second defendant appraised of developments in the proceedings and (c) advising the second defendant and taking instructions from the second defendant in respect of negotiations, but with the exception of the costs the subject of this order, the second defendant will otherwise to bear her own costs of these proceedings, including all her costs of the hearing. 9. The second defendant will pay the estate's costs of the determination of the issue of the designation of the Sylvania Waters property as notional estate. 10. The first defendant's costs will be paid out of the estate on the indemnity basis. 11. Direct the second defendant provide to the plaintiff and to the first defendant, within 7 days of the date of these orders, information as to the account or accounts in any financial institution in which she or any person on her behalf holds the notional estate and identifying the current balance of the notional estate. 12. Within 28 days, the estate will pay to the plaintiff the sum of $40,000 and Maria Large will pay the sum of $20,000 to the plaintiff on account of the costs orders made in favour of the plaintiff. 13. Grant liberty to apply.

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c) One half of the proceeds of sale of the Sylvania Waters property which without regard to interest earned is $1,351,461 (being half the net proceeds of sale of $2,702,922) which proceeds of sale will be referred to in these reasons as "the Sylvania Waters Fund". 11 The executor, who administers the estate and administers the JML Superannuation Fund through Lausanne verifies the figures for (a) and (b). Maria Large is the source of information about the quantum of the Sylvania Waters Fund. There is no reason to believe the information supplied by Maria Large about the quantum of the Sylvania Waters Fund is incorrect. 12 The executor points out that if an order for provision of $400,000 after tax is paid to the plaintiff out of the JML Superannuation Fund, either the estate or the JML Superannuation Fund will be liable to remit $63,225 to the Australian Taxation Office ("ATO") in tax in relation to that order. The executor bases his conclusion about this liability to the ATO upon his analysis that the payment from either the estate or JML Superannuation Fund will be an Eligible Termination Payment Death Benefit ("ETP") of which 82.72% is taxable at a flat taxation rate of 16.5%. The executor's evidence is also that the payment of the tax itself is an ETP so that tax on the tax must also be determined. 13 The estate's liability to pay the amount of $400,000 pursuant to the Court's order (and for example interest determined on that amount under Family Provision Act s 11(1)(d))together with tax on that sum) creates a range of financial uncertainties in the administration of the estate. 14 The executor does not know for example what the tax consequences for the estate or JML Superannuation Fund will be if the estate is required to pay the plaintiff's costs. But the executor intends to apply to the ATO for a private tax ruling in the event the estate is ordered to pay the plaintiff's costs. 15 The executor says and I accept that if the Sylvania Waters Fund is designated as notional estate and the plaintiff's $400,000 and legal costs are paid from that fund that would mean that no tax will be payable by the estate, or the JML Superannuation Fund or Maria Large. 16 Most of the estate would be consumed by a $400,000 order for provision to the plaintiff and related payments, leaving very little for any other beneficiaries. Were the $400,000 and related payments to be paid out of the JML Superannuation Fund then approximately one third of that fund would be consumed by the payments. The executor has now taken the decision to pay that fund into the estate. Were that amount to be paid into the estate then the executor estimates that and I accept the combined value of the estate and JML Superannuation Fund prior to the plaintiff's $400,000 payment being provided for, but after the provision of the plaintiff's legal and taxation costs to be $1,729,645. 17 The issue between the parties is whether the plaintiff's order for provision in the nature of a legacy should be borne out of this combined value, thereby reducing the percentage entitlement of all the residuary beneficiaries, or whether it should be borne by the proceeds of sale of the Sylvania Waters property, which will be called the Sylvania Waters Fund. Legal, not factual disputes are at the heart of this contest between Maria Large and the estate. 18 Both the plaintiff and the executor submit that the Sylvania Waters Fund is liable to be designated as notional estate and should be so designated. They also submit that the Court should order that provision for the plaintiff be made out of the notional estate so designated rather than out of the estate of the testator, or indeed out of the JML Superannuation Fund, were it not to be paid into the estate. 19 Maria Large resists their contentions on a number of grounds. Those grounds are best understood in context of the relevant legislation. The Family Provision Act Part 2, Division 2 applies to situations where as a result of certain property transactions, properties not included in the estate of a deceased person may be designated in limited circumstances under the Family Provision Act as "notional estate" of the testator for the purposes of making a Family Provision Act order. Maria Large's arguments raise issues concerning Family Provision Act s 22, 23, 26, 27 and 28. These sections of the Family Provision Act are set out below: "22 Prescribed transactions

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d) The Court should not make an order designating the Sylvania Waters Fund as notional estate so as to allow the making of an order for payment of the sum of $400,000 to the plaintiff. But rather, that sum should be paid from the JML Superannuation Fund (which all parties already agree is liable to be designated as notional estate) on the basis that the Court should not designate notional estate in an amount in excess of that necessary to allow the making of the provision which should be made: Family Provision Act s 28 (2). 21 These contentions are dealt with in this order below. Prescribed Transaction - Full Consideration 22 Maria Large's first argument is that she gave full valuable consideration in money or money's worth to enter into the transaction that created the joint tenancy and for the testator's decision not to sever it. The former was given in money and the latter by herself continuing to be a joint tenant. Having done so, she says that Family Provision Act s 22 (1)(b) is not satisfied and there is no "prescribed transaction" to found a claim for notional estate. Maria Large says that she was a bona fide purchaser of a half interest in the Sylvania Waters property and that there was no gift to her. She submits that the Parliamentary intention expressed in s 22 is that a joint tenant such as Maria Large should be protected and that the Sylvania Waters Fund should not be regarded as notional estate by reason of the operation of s 22. 23 The difficulty with this argument is that the reasoning of Young J (as his Honour then was) in Wade v Harding (1987) 11 NSWLR 551, upon which it is founded, was disapproved by the Court of Appeal: Cetojevic v Cetojevic [2007] NSWCA 33 at [47]-[53] per Hodgson JA, [58]-[64] per Tobias JA and [65] per McColl JA. Young J's reasoning in Wade v Harding (1987) 11 NSWLR 551 is that full valuable consideration is given to a testator for the testator's omission to sever the joint tenancy immediately before death, because in Young J's words "what was foregone in not severing the joint tenancy was received by continuing to be a joint tenant". Based on Needham J's decision in Cameron v Hills (unreported) Supreme Court of NSW, 26 October 1989, the Court of Appeal in Cetojevic v Cetojevic [2007] NSWCA 33 identified the error in Young J's reasoning by directing focus to the instant before death, as is required by Family Provision Act s 22(5). The Court of Appeal concluded that it could not be said that at that moment the testator had an equal chance of surviving the other joint tenant. Maria Large fails on this first argument. Prescribed Transaction - Power to Sever the Joint Tenancy 24 Maria Large also says that there was no prescribed transaction because the testator did not have the power to sever the joint tenancy that he agreed to create with her. One part of this argument is based upon the form of the Heads of Agreement that the testator and Maria Large executed before their contemplated remarriage. The other part of the argument is based upon the decision of Brereton J in Goyal v Chandra (2006) 68 NSWLR 313; (2006) 12 BPR 23,553; [2006] NSWSC 239.

[114]

John and Maria agree to enter into a BFA as soon as practicable after the execution of this Heads of Agreement. 27 The first difficulty with Maria Large's argument is that the Heads of Agreement contain no promise not to sever the joint tenancy. This was no informal or casual agreement. The parties retained barristers and solicitors in Perth, to prepare it. The words they crafted in clause 1 were that after the testator removed Rhonda's name from the title of the Sylvania Waters property that he would "register it in his own and Maria's names in equal shares as joint tenants". The absence of an additional promise not to sever the joint tenancy so created in such a carefully drawn agreement indicates a lack of contractual consensus about that subject. Clause 1 of the Heads of Agreement records that the promise exchanged for Maria Large's provision to the testator of $1.5 million is merely that he should "register" his and Maria Large's names as joint tenants. There is no additional promise that what was registered will also be maintained in that precise form. 28 Second, the structure of the Heads of Agreement indicates that the parties refrained from taking the extra step and agreeing not to sever the joint tenancy. The Heads of Agreement acknowledges the separate Quarantined Property of each party. Each renounces any claim to the other's Quarantined Property except as provided for in the Heads of Agreement. The general scheme that the parties had in mind in combining some of their property was explained in Acknowledgement (i) in the Heads of Agreement which was that, apart from keeping their Quarantined Property separate, Maria Large and the testator "otherwise wish to combine only such part(s) of their Quarantined Property set out in the first and second schedules" which might be necessary to enable them to finance a high quality lifestyle from their combined net incomes and "purchase a high quality home in equal shares". The acknowledgement then significantly says "the Heads of Agreement will record those parts of John's Quarantined Property and Maria's Quarantined Property that may for the time being be combined to achieve these aims". This acknowledgement expresses a measure of practical foresight that the parties might want to change their minds about which parts of their Quarantined Property they might want to continue to combine. The commitment of Quarantined Property to become joint property is only "for the time being". The first and second schedules of the agreement contained a list of the quarantined assets of each of the parties. The net figures in both are substantial, being $4,816,563 for the testator and $4,823,500 for Maria Large. The testator's Quarantined Property includes the Sylvania Waters property, valued at $3,000,000, less a liability of $1,354,638, leaving a net value of $1,645,362. Although clause 1 of the agreement refers to the registration of the Sylvania Waters property in both parties names "in equal shares as joint tenants" looked at as a whole, the identification of the Sylvania Waters property as part of the testator's Quarantined Property means that it is part of what the parties contemplated "may for the time being be combined" to achieve their aims. Those aims are not stated to include taking the benefit of a high quality home by survivorship. 29 Thirdly, there are indicia in the Heads of Agreement that it was a hard headed document negotiated by two commercially astute people who had already been through one mutual divorce and were ready to provide for what might happen if there were another one. The idea that either of them might have promised to the other not to sever the joint tenancy sits rather oddly with an agreement in which the parties were providing mechanisms just in case they had to exit their relationship. In the event of separation the parties agreed that they would each retain their Quarantined Property and that "their Joint Assets shall be divided equally between them": clause 11 (c). The agreement contemplates that events other than death might terminate their arrangements to hold joint property. If there were an implied undertaking not to sever the joint tenancy it was a promise which the agreement itself contemplated might at some time be dissolved. It is a puzzle to confine such an implied understanding to any particular time period. This suggests that there is no such implied undertaking in the Heads of Agreement.

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30 Fourthly, the central premise of Maria Large's argument is that the "arrangement" in the Heads of Agreement requiring the second defendant to borrow $1.5 million secured by the land is necessarily dependent upon an "existing state of circumstances" that the title to the property be held in joint tenancy. On the contrary, there is no necessary connection between the Sylvania Waters property being held in joint tenancy (as to distinct from tenancy in common) and Maria Large's obligation to borrow $1.5 million secured by the land. The Heads of Agreement record that the parties' purpose in borrowing the $1.5 million was so that the testator could pay Rhonda $1,054,638 under the testator's family law settlement. Together he and Rhonda had taken out an interim bank loan on the security of the Sylvania Waters property of $250,000, making a total of $1,304,638. In addition to this sum, the testator wished to carry out renovations to the Sylvania Waters property and to meet other costs to a total sum of $195,362, bringing his total expenditure commitment to $1.5 million: Heads of Agreement, Acknowledgements, (j). The effect of the Heads of Agreement was that Maria Large's borrowings were applied to pay out Rhonda and substitute Maria on the title in place of Rhonda. The title to the Sylvania Waters property could be used to facilitate Maria Large doing this. Maria's argument is correct to the extent it asserts that use of the title to the Sylvania Waters property was necessary to effect this arrangement. But whether the testator's interest in the Sylvania Waters property recorded on the title was held with Maria Large in the future as a joint tenant or tenant in common is a further step which is independent of the use of the title for security purposes. There is no evidence advanced before the Court to suggest that the financing arrangement could not have worked equally as well over time if the testator and Maria Large had decided for their own purposes to hold the Sylvania Waters property as tenants in common. It was important, as the Heads of Agreement contemplate, that the testator continued to make the title available for the borrowings. The testator would have breached clause 3 of the Heads of the Agreement if he had withdrawn his consent to the use of the title of the Sylvania Waters property as bank security for Maria's loan. But he would not have been in breach of the agreement had he decided to sever the joint tenancy but allow his interest still to be made available for Maria Large's borrowings under clause 3. Thus, there is no necessary connection between the borrowing arrangements under the Heads of Agreement and the maintenance of a joint tenancy. If the implied term for which Maria Large contends were to be analysed as a term implied in fact into the Heads of Agreement it would not satisfy the business efficacy test: Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422, 442. 31 Fifthly, one curious feature of the Heads of Agreement is that the mutual wills compact that the parties made did not involve identically matching promises. On death, the testator promised to leave Maria Large 50% of the net value of his estate. The testator's will conforms with that promise. In contrast Maria Large promised to execute a will leaving not 50% of her estate but, leaving not less than $1.6 million to the testator. She agreed "to maintain at all times a valid will that bequeaths to John the amount of $1.6 million or such sum equal to the value of any debts secured against the title of the Sylvania Waters property on the date of her death whichever is the lesser amount". The agreed objective was that the property would be free of Maria Large's borrowing obligations upon her death. This is not surprising because Maria Large's borrowing was to acquire Rhonda's interest in the property. The parties did expect they would hold the Sylvania Waters property until one or the other of them died. But their mutual wills compact could have worked equally well after severance of the joint tenancy. Maria Large's promise to maintain a will in these terms ensures that upon her death before him the testator would either take by survivorship or otherwise perhaps under her will Maria Large's interest in the Sylvania Waters property that was debt free. 32 Maria Large's other argument is based on Brereton J's decision in Goyal v Chandra. Maria Large draws attention to two parts of this case. The first is a passage that Brereton J takes from the Canadian decision of Parry v Sullivan (1979) 9 RFL (2d) 349 in which McKinnon J in the British Columbia Supreme Court when dealing with a separation agreement in the context of a joint tenancy said, "The separation agreement contained a specific covenant whereby the property was to be owned in joint tenancy and that covenant carries with it an implied term that the joint tenancy would continue until otherwise agreed by the parties". But Brereton J's analysis of Parry v Sullivan was that this was a conclusion based upon particular evidence in and the specific form of the covenant in Parry v Sullivan. The analysis of the Heads of Agreement above shows that neither the covenant in clause 1 nor any implied term would prohibit the testator from severing the joint tenancy. 33 Maria Large also draws attention to Brereton J's statement of principle in paragraph 26 of Goyal v Chandra which explains the mechanism by which equity will enforce an obligation not to sever a joint tenancy, by disregarding in equity the severance of the legal joint tenancy, where a contract would prohibit that result. "Usually, property held in joint tenancy stands outside the scope of the equitable obligation imposed in the mutual wills context, because property so held is not regarded as part of the subject matter of the agreement, passing as it does by survivorship and not under the wills. But there does not seem to be any reason in principle why an interest held by a co-owner jointly should not be capable of being dealt with in this manner, just as one held by a co-owner in common with another, if the joint tenants so agree, or if they reach some arrangement or understanding short of agreement which nonetheless gives rise to an equitable obligation to the same effect. In such circumstances, equity will enforce the obligation by disregarding a severance of the legal joint tenancy." 34 This passage does not assist Maria Large's argument. The testator has no express or implied contractual obligation in the Heads of Agreement not to sever the joint tenancy. The logic of Goyal v Chandra has no application here.

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Interference with Reasonable Expectations 35 The Court may not make an order under the Family Provision Act designating the Sylvania Waters Fund as notional estate of the testator unless it has considered matters including "the importance of not interfering with reasonable expectations in relation to property": Family Provision Act s 27(1)(a) Maria Large submits that the JML Superannuation Fund can be deemed notional estate and that all parties agree it is notional estate. She says that provision for the plaintiff should be made from the JML Superannuation Fund not from the Sylvania Waters Fund if it is designated as notional estate 36 As a result of the reading of the executor's affidavit of 1 April 2010, the case was argued on the basis that JML Superannuation Fund would be paid into the estate. Maria Large's final submission contended that the contents of the JML Superannuation Fund might not be paid into the estate for various reasons. Because of that unlikely possibility this judgment also deals with what should happen if the JML Superannuation Fund is not paid into the estate. 37 Maria Large's submission about Family Provision Act s 27(1)(a) is not persuasive for several reasons. First, the Court has already construed the Heads of Agreement to permit Maria Large and the testator to alter from time to time which of their properties they held jointly. The Heads of Agreement relevantly define the "reasonable expectations" of the parties about their joint property. Those expectations were consistent with the testator having the power to sever the joint tenancy. Orders designating notional estate which assume that the testator had that power do not interfere with the parties' reasonable expectations in relation to the property in question. 38 Second, the statutory consideration in Family Provision Act s 27 (1)(a) is only one of three s 27 considerations that the Court must take into account before making an order designating property as notional estate. The other mandatory considerations include "the substantial justice and merit involved in making or refusing to make the order" and "any other relevant matter": Family Provision Act s 27 (1)(b) & (c). The substantial justice and merit of the case incline the Court towards making the order to place the burden of the payment to the plaintiff upon the Sylvania Waters Fund due to the relative financial positions and moral claims of Carole and Maria Large. I accept the executor's submissions on the application of Family Provision Act s 27 (1)(b) in this case as follows.

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b) Moral Claim. Carole has strong moral claim on the estate by reason of her full time care for the testator for their mother which spared the testator considerable time and money. The testator promised Carole he would compensate her for giving up her career to care for his and Carole's mother. She did just that. He also promised her that she would have "financial security" in the event that he predeceased her. Carole made direct contributions to the testator's welfare especially through her care for him in the months before his death when he fell into ill health. When all the competing claims on his bounty are considered, the testator appropriately measured her moral claim at 25% of the residuary estate. 39 Making an order for provision in favour of the plaintiff out of the estate would very substantially reduce Carole's benefits from the estate. This is an unacceptable outcome considering her needs and moral claim. How the JML Superannuation Fund should be dealt with were it be designated as notional estate is considered in the next section. Order out of the Estate or which Possible Notional Estate? 40 Finally, Maria Large emphasises the statutory injunction in Family Provision Act s 28 (2) that the Court should not make a designating order "in excess of that necessary" to allow the making of the provision to the plaintiff: Family Provision Act s 28 (2). That statutory injunction is met by ensuring that the designating order does not go beyond the sum of $400,000 plus any applicable interest and costs. 41 The estate is insufficient to allow the making of a provision of $400,000 without heavily impacting upon the benefits to Carole under the will. Carole was not a Family Provision Act s 6 "eligible person". But her situation represents "the existence of special circumstances" that call for the result that provision should not be made wholly out of the estate: Family Provision Act s 28(1)(b). In my opinion the provision should not be made either wholly or partially out of the estate. But what about the JML Superannuation Fund as possible notional estate? 42 In addition to the parties' concessions about the JML Superannuation Fund, I now formally find that it would be liable to be designated as notional estate under Family Provision Act s 22(4)(e). The testator's failure to amend the JML Superannuation Fund trust deed to bind the trustee to pay the fund into estate is a prescribed transaction. The consequences of this must be briefly considered. 43 Under the trust deed of the JML Superannuation Fund Lausanne, the trustee, is free to pay the fund into the estate or to determine the beneficiaries from among the class of dependents, defined under the trust deed. This class includes Maria Large and Rhonda, the former spouses but does not include Carole. This means that Carole could only benefit from the funds in the JML Superannuation Fund if they are paid into the estate, through which she is entitled to 25% of residue. Lausanne proposes to do this unless restrained. 44 I have decided to make orders in these proceedings on the basis that Lausanne is effective in achieving its stated purpose and pays the JML Superannuation Fund into the estate. That is what it says it will do. The orders made will operate on the estate as including the amount of the payment from the JML Superannuation Fund. 45 But Maria Large contends in written submissions that the executor has what her counsel describes as a conflict "between his duties as Executor and his duties as trustee of the superfund". Lausanne, not the executor, is the trustee of the JML Superannuation Fund. Leaving that aside, the present proceedings are not constituted to decide such an issue, even if it exists. 46 But the possibility still exists, despite what the executor says, that the JML Superannuation Fund will not be paid into the estate. If that happens I see no reason why the orders of this Court should be any different. The estate would be insufficient to bear the provision for the plaintiff: Family Provision Act s 28(1)(a). The "special circumstances" also represented by Carole's situation means that an order should still not be made out of the estate: Family Provision Act s 28(1)(b). 47 But should the notional estate designation order be made against the funds in the JML Superannuation Fund rather than the Sylvania Waters Fund? The answer is that even if the JML Superannuation Fund is not paid into the estate in the short term there is the possibility that it might be paid into the estate in the long term, given Lausanne's intention to do so. This means that Carole's interest in the estate is likely to be the least diminished by making an order against the Sylvania Waters Fund. 48 In the result therefore I will designate the Sylvania Waters Fund as notional estate out of which the order for provision in favour of the plaintiff will be paid together with any related interest and costs orders. Oliver Scott's Interest 49 A consequence of ordering that the plaintiff should have an order for provision under the will of the testator, in place of the plaintiff's life estate in 12.5% of the residue, is that the testamentary structure set up to benefit the testator's grandson Oliver Scott is destroyed. Orders must be made to provide a substitute structure for Oliver Scott. The principal judgment, at [124], foreshadowed the need to deal with this issue with evidence as to the value of Oliver Scott's remainder interest. The executor has now advanced evidence to establish the value of Oliver Scott's remainder interest. Neither the plaintiff nor Maria Large disputes the executor's calculation of this value. 50 The integers in the valuation of Oliver Scott's remainder interest require an assumption about the size of the estate. The executor's decision to pay the remaining funds in the JML Superannuation Fund into the estate allows this valuation to be done with certainty. If the executor had not made the decision to pay the remaining funds of the JML Superannuation Fund into the estate, Oliver's 12.5% capital interest in the estate would have remained a matter of speculation. 51 The executor estimates the value of the estate and the JML Superannuation Fund prior to the plaintiff's legacy being provided for but after a provision of the plaintiff's legal and taxation costs, at $1,729,645 a 12.5% portion of which is $216,205. It is necessary to calculate present day value of Oliver Scott's remainder interest in this sum. This is a function of the plaintiff's life expectancy and assumptions about the rate of return on capital. The executor retained Bendzulla Actuarial Pty Ltd, consulting actuaries to undertake this valuation as at 31st March 2010. The Bendzulla Actuarial report was tendered in the proceedings without objection during final submissions. 52 Bendzulla Actuarial assumed the plaintiff's life expectancy as an Australian male aged 48.41 years was in accordance with Australian life tables allowing for the 25 year trend improvement in mortality rates, namely a life expectancy of 39.83 years. Bendzulla Actuarial assumed a 4% per annum real rate of return, price inflation of 3% and therefore an assumed discount rate of 7% per annum. The actuarial calculations resulted in the asset of $216,205 being allocated as to $163,235 (75.5%) to the plaintiff's life interest and $52,970 (24.5%) as to Oliver Scott's remainder interest. Bendzulla Actuarial point out that the recommended percentage split can also be applied to any other value adopted for the assets as at 31 March 2010, should a figure other than $216,205 be selected. 53 Based on the Bendzulla Actuarial report, the executor submits that Oliver Scott should receive an order for provision in an amount of $52,970 less tax. The executor has made a provision for tax on Oliver Scott's payment of $7,370. Oliver Scott has been independently advised about this entitlement. Oliver Scott and his independent legal adviser express satisfaction in dealing with his interest through such a calculation. They accept the correctness of details of the calculation which has been done. 54 Before inferring that the appropriate legacy for Oliver Scott is $52,970, the uncertainties that still exist in the administration of the estate should be recognised. The value of the estate and the JML Superannuation Fund of $1,729,645 assumes a provision of $63,225 for the tax on the payment of $400,000 to the plaintiff, assumes the provision of $125,000 for the plaintiff's legal costs and provides $7,370 for tax on Oliver Scott's payment. The estate's actual liabilities may be required to be met at values other than their presently assumed values. Costs orders are made in this judgment. These also may impact upon the value of the assets of the estate. It seems to me that by doing the careful calculations that he has the executor and his advisors have done all that reasonably can be done to produce a fair calculation of Oliver Scott's appropriate substitute entitlement on available information. 55 Family Provision Act s 10 confers the Court's power to order a payment to Oliver Scott in the present circumstances. That section provides: "Where, on an application in relation to a deceased person, the Court makes an order for provision in favour of an eligible person out of the estate or notional estate of the deceased person, the Court may make an order in favour of any other eligible person or any other person by whom, or any purpose for which, property in the estate or notional estate of the deceased person is held or would, but for the order for provision in favour of the eligible person, be held that provision be made in such manner and to such extent as the Court thinks necessary to adjust all the interests concerned and to do justice in all the circumstances." 56 The Court has made an order for provision in favour of the plaintiff, an eligible person out of the notional estate of the testator. Family Provision Act s 10 empowers the Court to make an order in favour of someone such as Oliver Scott, who is an "other person by whom property in the estate…is held but for the order for provision in favour of [the plaintiff]". The Court's power is to make provision for Oliver Scott "in such manner and to such extent as the Court thinks necessary to adjust all the interests concerned and to do justice in all the circumstances". 57 To avoid any injustice to Oliver Scott he should be no worse off by the provision being made for the plaintiff than he would have been by taking a benefit under the will. The Bendzulla Actuarial calculation of the remainder interest is the best evidence of the present value of Oliver Scott's entitlements under the will. To make a provision for Oliver Scott in that amount does justice in all the circumstances. Accordingly Oliver Scott will receive the gross sum of $52,970 out of the estate in place of the provision made for him in the will. This will be reflected in the final orders. 58 Other adjusting orders are required to do justice to the other beneficiaries, Maria Large, Carole Large and Rhonda Large. Under the will there were four beneficiaries and one remainderman. The will was arranged so that the beneficiaries took in multiples of eight: 1/8th (12.5%) to each of Rhonda and the plaintiff; 2/8th (25%) to Carole; and 4/8th (50%) to Maria Large. The order in the nature of a legacy of $400,000 is provided to the plaintiff and Oliver Scott's remainder interest has now been determined. The question arises as to how the respective interests of Rhonda, Carole and Maria, who hold the remaining interests in the residuary estate, should be apportioned. The executor proposes that the remaining beneficiaries be entitled to the residue of the estate in the following proportions: Maria as to 4/7ths; Carole as to 2/7ths and Rhonda as to 1/7th. This is a just realignment of the interests of the three remaining beneficiaries. Ordering a distribution in multiples of seven means that no beneficiary receives a smaller proportion than she would have received under the original testamentary structure. Maria Large receives twice the amount that Carole receives. Carole in turn receives twice the amount that Rhonda receives. This reflects the original testamentary structure. The final orders effect this amended testamentary structure. Costs Issues 59 The main costs issues in the proceedings concern the costs of the second defendant and the costs of the plaintiff. There are some other incidental costs-related issues. Maria Large's Costs 60 Maria Large seeks that her costs of the proceedings be paid out of the estate on the ordinary basis. The plaintiff joined Maria Large as a second defendant to these proceedings. The plaintiff claimed against her that the Sylvania Waters Fund should be designated as notional estate. Maria Large resisted that contention and has failed. Maria Large also played an active role in advancing evidence to contain the impact of the plaintiff's claim against the estate. On this she was partly successful. The actions of her solicitors and counsel in propounding a case on her behalf added to the case against the plaintiff. Maria Large submits that she should have her costs of performing this role in the proceedings. I will deal with each of these two issues in turn. 61 The estate's interests and those of Maria Large were opposed to one another in relation to the issue of whether the Sylvania Waters Fund was notional estate. Maria Large was entitled to be separately represented in the proceedings on that issue to resist an outcome which would diminish the value of the Sylvania Waters Fund that she would otherwise take by survivorship. But on this issue Maria Large has fought and lost. The ordinary rule is that costs follow the event: Civil Procedure Act 2005 (NSW) s 98, Uniform Civil Procedure Rules 2005 (NSW) Pt 42, r 42.1. 62 This principle applies unless the Court is satisfied that some other order should be made. Maria Large points to a conflict between her interests and those of the estate on this issue and the necessity for her to be separately represented. This can be conceded. But the costs of her separate representation on the issue of whether the Sylvania Waters Fund should be designated as notional estate can be isolated. She should bear these costs. As she has failed on the issue against the estate and against the plaintiff she should also pay the plaintiff's costs and the estate's costs of the issue on the ordinary basis. Neither the plaintiff nor the estate should be left out of pocket in respect of an issue that they advanced, where they met resistance and on which they succeeded. 63 The remaining part of Maria Large's costs relate to the evidentiary and forensic support that she gave through her solicitors and counsel to the executor's case against the plaintiff. The principles relating to the expenditure of costs of this kind are not controversial. Beneficiaries may be allowed to intervene in Family Provision Act proceedings but their intervention is unwelcome: Vasiljev v Public Trustee [1974] 2 NSWLR 497 at 503, a decision on the former Testator's Family Maintenance and Guardianship of Infants Act 1916 (NSW). However Family Provision Act proceedings are not a vehicle for persons with like interests to those directly involved as parties to participate in the proceedings on the basis that they will automatically be entitled to costs out of the estate; the estate does not automatically bankroll the legal costs of every party who wishes to be heard, a matter which needs to be borne in mind by parties who desire to participate but whose interests are already adequately protected: Milillo v Konnecke (2009) 2 ASTLR 235; [2009] NSWCA 109 at [107]-[127]. The executor submits that he at all times properly represented her interest as a beneficiary under the will and the JML Superannuation Fund. 64 In response Maria Large relies on Statham v Shepard (No 2) (1974) 23 FLR 244 at 246-247 and Milillo v Konnecke (2009) 2 ASTLR 235; [2009] NSWCA 109 at [109] and submits that although the estate and she were united in opposition to the plaintiff, they remained at arm's length during the course of the general litigation as she had to because of their differing positions on the notional estate issue. Moreover she submits that she acted reasonably in maintaining separate representation by avoiding the duplication of costs. 65 Maria Large had the choice of taking a wholly defensive position in relation to the notional estate issue and not incurring costs beyond that issue on which she had been made a party. She chose to do otherwise. To the extent that she has moved beyond the defensive role and assisted the estate against the plaintiff the normal rule should still apply. She should bear her own cost of that activity. Her joinder as a defendant on the notional estate issue does not create in her an expectation that her choice of assistance to the estate against the plaintiff will be underwritten by the estate. Her sole reward for that activity is perhaps her contribution to the containment of the plaintiff's claim but no more. Maria Large submits that her role in the proceedings has assisted the estate. That may well be correct but it does not change the application of the usual principle. 66 Maria Large also points to the authorities that beneficiaries may have their costs even at the expense of the executors if the executors take an attitude which compels the beneficiaries to seek representation to protect their gifts: In the Will of Lanfear (1940) 57 WN (NSW) 181 at 183 per Williams J and see Re S J Hall (Deceased) (1958) 59 SR (NSW) 219 at 226 per Owen J, McLelland CJ in Eq and Walsh J. But in this case there is no occasion to apply that principle. There is no evidence that any attitude expressed on the part of the executor required Maria Large to conduct an active case as a beneficiary against the plaintiff. 67 The estate concedes that it has been saved some costs by Maria's representation though her own lawyers and that she is entitled to some reimbursement for those costs. The executor accepts that Maria Large should be indemnified out of the estate in respect of:

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c) advising Maria Large and taking instructions from her in respect of negotiations. 68 The estate's concession in respect of these costs is appropriate. Maria Large will have an order in her favour against the estate in respect of her costs in these three categories. She will have no other costs order in her favour. The Plaintiff's Costs 69 The estate and the plaintiff are also at issue as to questions of costs. The plaintiff seeks the payment of costs out of the estate. This dispute raises issues of special significance to the plaintiff in this case. 70 These proceedings have taken an unusual course. A two day mediation before the Hon T R Morling QC was unsuccessful. Parties then attempted to shorten the path towards settlement by having the Court first determine the question of the plaintiff's Family Provision Act s 7 entitlement. That desired outcome has not been achieved since my principal judgment on 23 February 2010. There has now been a supplementary round of submissions and two short hearings before this judgment is given. That has undoubtedly escalated the plaintiff's costs from the estimate at the time of the original hearing given in the affidavit of Vincent Boss sworn in August 2009 of $113,000 plus an uplift fee of $28,000 making a total of $141,000. Further the plaintiff says that the complexity of the estate, and the number of beneficiaries involved has meant the plaintiff has incurred costs greater than those that would have been incurred in the average Family Provision Act claim. To that it could perhaps be added that the dispute about whether the Sylvania Waters Fund being designated as notional estate has lengthened the proceedings. The plaintiff has also incurred costs in the proceedings brought by the third defendant in the Supreme Court of Western Australia seeking judicial advice as to whether Lausanne was entitled to distribute the whole or part of the assets of the JML Superannuation Fund to Maria Large. 71 Of the matters raised I accept the executor's submission that the appropriate course with respect to the Western Australian proceedings is to leave them out of account. Orders for costs in those proceedings will be made by the Supreme Court of Western Australia. It goes beyond the reasonable exercise of costs jurisdiction in these proceedings to anticipate what might happen to costs orders in the Western Australian proceedings. 72 The plaintiff has succeeded against both the estate and Maria Large. The plaintiff is entitled to an order for costs against the estate in respect of all issues except the designation of the Sylvania Waters Fund as notional estate. On that issue, Maria Large should pay both the plaintiff's and the estate's costs. 73 It might be thought that a fair and efficient way to assist a costs assessment is to divide up the two sources of recovery for the plaintiff's costs by a percentage. This could be based upon the length of time and preparation of these various issues. But I will refrain at this point from doing that. The parties may wish to apply for me to make such an apportionment under the Court's grant of liberty to apply. 74 The plaintiff's financial position is marginal. The flow of funds from the estate to the plaintiff both in quantum and in timing is of great significance to the plaintiff's present welfare. Any further delay of funds to him is likely to impair the practical achievement of the plans unfolded in his case and upon which the Court's orders were based. I accept the force of the plaintiff's submissions that it is important that the funds be made available to the plaintiff as soon as possible and with as little diminution in value as possible due to the deduction of other expenses. 75 The Family Provision Act s 33 confers special power to order the cost of the proceedings to be "paid out of the estate or notional estate or both in such manner as the Court thinks fit". Given the size of estate, given the amount received by other beneficiaries, given the plaintiff's claim upon the testator's bounty, and, given the unexpected escalation in the plaintiff's costs, foreseeable diminution in the plaintiff's legacy should be avoided. 76 There may not be agreement as to the quantum of the plaintiff's costs. Costs assessments may take time. The plaintiff requests an order that the bulk of the plaintiff's costs be payable forthwith. The plaintiff requests that two thirds of the plaintiff's costs identified in the affidavit of Vincent Boss be payable by the estate within 28 days of the date of this judgment. I am not prepared to make that order in respect of costs that are not the subject of evidence. But the evidence establishes minimum costs of $113,000 excluding the uplift fee. The plaintiff's finally assessed costs will be higher. I will direct that a lump sum of $60,000 be paid on account of the plaintiff's costs as recorded in Mr Boss' affidavit and that this be paid as to one third out of the Sylvania Waters Fund and as to two thirds by Maria Large within 28 days. The Court's power to make this order arises from Family Provision Act s 33(1) and Civil Procedure Act s 98(4). 77 This may also be an appropriate case, to assist the parties and especially the estate in calculating its liabilities, for the Court to be asked to make a lump sum costs order under s 98 (4) of the Civil Procedure Act. The jurisdiction to make such an order is broad: Harrison v Schipp (2002) 54 NSWLR 738 at [21]. This avoids the need for an assessment and will allow expedited distribution and finalisation of the estate. But such an order could not be made without the Court seeing evidence of actual costs incurred. The grant of liberty to apply to the parties encompasses re-listing the matter for this purpose. 78 The plaintiff has also raised issues in final submissions about whether there will be any difficulties in recovering the notional estate now in the hands of Maria Large. There has been no suggestion whatsoever in these proceedings that these funds are in any way at risk of dissipation. Nevertheless it would aid the efficient administration of the estate if these funds were secured in some way to answer the Court's orders. The short term solution to this issue is to require Maria Large to identify to the estate and the plaintiff within 7 days the account in which the Sylvania Waters Fund is held and the precise current quantum of that fund. If security orders are needed, the matter can be re-listed under the Court's grant of liberty to apply. If there is no agreement the Court has power under Family Provision Act s 15(1)(a)(ix) to secure this fund. Interest 79 The plaintiff asks for interest on his order for provision from at least September 2009: Family Provision Act s 11(1)(d). The testator died four years ago. It is likely that the $400,000 will not be paid for a further short period. This judgment means that it may be the Sylvania Waters Fund that bears any order for interest. It seems to be that Maria Large has not had an adequate opportunity in the exchange of final submissions to deal with the plaintiff's claim for interest. She may for example wish to contend that any interest should partly be paid by the estate. The plaintiff may wish to ask for interest for a longer period. There may be issues about the rate of interest. I will therefore allow the parties time to put submissions as to this question. This is also encompassed in the grant of liberty to apply. The Estate's Costs and Other Costs Issues 80 The executor should have his costs out of the estate on the indemnity basis. 81 The other costs issues relate to costs orders between the estate and Maria Large. As has been identified earlier Maria Large will pay the estate's costs associated with the issue on which she has failed against the estate, the issue of the designation of the Sylvania Waters Fund as notional estate. Conclusions and Orders 82 The following orders and directions give effect to my reasons. Order: -

Large v Higham

At a glance

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Judgment (135 paragraphs)

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Legislation Cited (4)

Cases Cited (9)

Cited By (1)