Should a notional estate order be made?
97That then leads to the question whether a notional estate order ought to have been made. The primary judge dealt with that question at [151] ff, concluding that he would, in any event, have refused to make a notional estate order, having regard to the matters specified in s 87.
98The primary judge proceeded to examine the factual circumstances following Hazel's death and the distribution of the estate. His Honour found, at [185], that "from and after ... 10 June 2010 ... Brian was aware of the manner in which Hazel had chosen to distribute her Estate". His Honour found that when Brian received the interim distribution on 27 July 2010:
"... he knew of the distribution of the real estate to his siblings and, in the case of the Cameron Street Property, knew that [Gaye] had put the property on the market for sale."
99The primary judge observed, at [186], that "[a]t around this time, Brian also became conscious of the need to get legal advice about his situation". Nonetheless, Brian did not do anything until 29 October 2010, at which point Gaye had committed to selling Cameron Street and to the purchase of the Dora Creek property. His Honour considered, at [187], that:
".. at the time [Gaye] (together with her husband) contracted to purchase the Dora Creek Property on 22 October 2010, she had an entitlement to have, and in fact had, a 'reasonable expectation' that she was free to deal with her legacy."
100His Honour recognised, at [189], that Brian was entitled to make a claim for provision up until April 2011: s 58(2) of the Succession Act. His Honour found, however, at [190], that
"... the accumulation of the events comprising the 10 June 2010 meeting, Brian's repeated enquiries thereafter as to when he would 'get my money' and his acceptance, without demur, of the interim, and then the final distribution of the Residue, entitled Gaye to believe that she was free to deal with the proceeds as she wished."
101The primary judge also found that making the order would cause a substantial injustice. His Honour identified that Gaye's assets, held jointly with her husband, comprised the Dora Creek Property and $47,815 in a savings account. His Honour noted that Gaye was not working and received a carer's pension, and that her husband was on a disability pension. His Honour considered that were a notional estate order to be made, "Gaye would have to either utilise the only savings that she and [her husband] have, and/or sell the Dora Creek Property". His Honour concluded, at [194], with respect to Gaye that:
"... it would work a substantial injustice to Gaye were that to happen and would interfere with her 'reasonable expectations in relation to property' comprised by her understanding that she was free to deal with her legacy, including to purchase a home for herself and her husband."
102The primary judge described Gary's position, at [196], as "not quite as difficult as Gaye's". His Honour found, at [197], that:
"... by the time Gary received the proceeds of sale of the Gibbes Street Property, and, with Julie, decided to sell the Beverly Hills Property, he knew that Brian had commenced these proceedings. Thus, in a sense, he took the risk that Brian's application for provision might be successful. The injustice of his situation, and his 'reasonable expectations' must be considered in that light."
103His Honour noted, at [198], that if an order was to be made:
"... the practical result would be that, in view of Gaye's financial position, Gary would, in all probability, have to bear the burden of any such order."
104His Honour stated, at [199], that he did not think it would be just to make a notional estate order in those circumstances.
105The question as to what constitutes "reasonable expectations" for the purpose of the Family Provision Act 1982, s 27(1)(a) was considered by Ward J (as her Honour then was) in John v John [2010] NSWSC 937, where her Honour stated:
"117 Section 27(1)(a) of the Family Provision Act requires the court, before making an order in relation to notional estate, to consider (among other things) the importance of not interfering with reasonable expectations in relation to property.
118 What amounts to 'reasonable expectations in relation to property' was considered in Petschelt v Petschelt [2002] NSWSC 706, at [68], by McLaughlin M (as the Associate Justice then was), who said:
That phrase does not, however, indicate the person by whom those reasonable expectations are held. Clearly the Court must consider the reasonable expectations of the First Defendant in relation to property. By the same token, however, the Court should also consider the reasonable expectations of the Deceased herself in relation to property, and also, possibly, the reasonable expectations of the Plaintiff. (my emphasis)"
106There is also a line of authority indicating that executors who have distributed property to themselves prior to the period in which any claim upon the estate might be made by an eligible person ought to be required to restore the monies to the estate: see Ernst v Mowbray [2004] NSWSC 1140 per Young CJ in Eq, especially at [64].
107Although his Honour found that it would work a substantial injustice to Gaye and would interfere with her "reasonable expectations in relation to property": see s 87, that finding has to be made in the context that Gaye, as one of the executors of Hazel's estate, saw fit to distribute the estate, including to herself, within the time an application may be made under the Succession Act for an order for family provision. In my opinion, that is relevant to determining the importance of not interfering with her reasonable expectations of being able to use the proceeds of the sale of the Cameron Street property without regard to any potential claim by Brian. It is also relevant to the consideration of the substantial justice and merits in either making or not making a notional estate order. In this regard, the evidence established that prior to Hazel's death, Gaye was cognisant that Brian may be dissatisfied with the provision that had been made for him, and that at the time of Hazel's death, there was a possibility that he would contest the will.
108Insofar as Gary is concerned, as the primary judge recognised, he proceeded to deal with the Gibbes Street property and its proceeds in full knowledge that Brian had made a claim for provision from the estate. It appears that his Honour did not make a finding that Gary's "reasonable expectations" were interfered with. However, his Honour observed, at [198], that the notional estate order would, in all probability, fall on Gary.
109In my opinion, his Honour erred in refusing to make a notional estate order. There is a question, however, as to what property ought to be designated as notional estate and whether the Court should order, pursuant to the Succession Act, s 99 that the costs of these proceedings be paid out of the notional estate.
110At the conclusion of the hearing on the appeal, the question arose as to whether the Court should proceed to make a notional estate order at the time of giving its judgment. As it is possible that Gaye and Gary may advance differing arguments in respect of the property that should be designated as notional estate for the purposes of satisfying the order to be made in favour of Brian, the Court should accede to that suggestion. The parties ought also to have an opportunity to make submissions as to the costs of the trial and of the appeal.
111Accordingly, I would propose the following orders:
(1) Appeal allowed;
(2) Set aside the orders made by Stevenson J at first instance;
(3) Order that further provision be made in favour of Brian in the sum of $100,000 out of property to be designated as notional estate;
(4) Reserve the question of what property is to be designated as notional estate for the purposes of Order 3;
(5) Direct the respondents, Gaye James and Gary Phillips, to file written submissions by 25 February 2014 in respect of the property to be designated as notional estate and in respect of costs of the trial and the appeal;
(6) Direct the appellant Brian Phillips to file any submissions by 11 March 2014 in respect of the property to be designated as notional estate and in respect of the costs of the trial and the appeal;
(7) Direct that the questions of the property to be designated as notional estate and of the costs of the trial and the appeal be determined on the papers.
112BASTEN JA: Courts have long struggled with applications by disappointed family members seeking a redistribution of a testator's estate. The present statutory regime requires a court considering whether to make a "family provision order in relation to the estate of a deceased person" to consider whether "adequate provision" for the "proper" maintenance, education or advancement in life of the applicant has not been made: Succession Act 2006 (NSW), s 59(1). If so satisfied, the court is empowered to make such order as it thinks "ought to be made": s 59(2).
113As discussed by Allsop P in Andrew v Andrew [2012] NSWCA 308; 81 NSWLR 656 at [16], one can say little more as to the standards and values to be applied than that the court should be guided by its perception of "prevailing community standards of what is right and appropriate". Views will undoubtedly vary within the community as to the weight to be given to a testator's wishes as expressed in the will: Andrew v Andrew at [35]. However, there is probably a reasonable level of acceptance for the view that, other things being equal, siblings should be treated broadly equally. Unfortunately, other things rarely are equal. One sibling may have shown devotion and care to the testator over a long period; another may have had minimal contact of any kind during his or her adult life. One sibling may have acted responsibly in relation to his or her own family, another as a wastrel.
114The latter example highlights a particular difficulty: the responsible sibling (who may have been favoured by the testator) may be better off than the other and less in need than the other who has made nothing of whatever opportunities were available. One approach in the latter case is to say that the wastrel should not expect more, despite being in greater need, than a proportionate share of the estate. In relation to the former case, involving the inattentive or distant sibling, a less than equal share may be thought appropriate. Both these stereotypical examples arise in the present case, the facts of which are fully explained by Beazley P. The applicant was less attentive to his parents' needs, especially in their later years, than his siblings. He also failed to establish himself in life: unlike the respondents, he owned no house. Thus, despite his greater need, he should not be entitled to (nor did he seek) more than one-third of the estate. Because of his distance from the family, he could not have complained if he had received a lesser share. He was, indeed, not cut out of his mother's will; he obtained the not insignificant sum of almost $180,000, being the value of the residuary estate.
115The properties left to each of the respondents were roughly equal in value. Neither wanted to keep the property distributed in kind, but immediately realised the cash value. The sister sold her property for $695,000; her brother obtained $710,000. They thus enjoyed 44% each of the estate, leaving the applicant with 11.4%.
116The applicant's claim, based on his relationship with his family, could reasonably have been valued at half that of each of his siblings: thus, if he had been left a share of $300,000, the respondents' share of the estate ($640,000 each) would have been 40.5% each and the applicant's share 19%. This result would have been fair and equitable from his perspective: would it have been fair and equitable from that of the respondents?
117The answer to this question must be yes, and is reflected in the reasoning of the trial judge. The applicant's sister's family had benefited from her daughter living in the house she inherited, rent-free, prior to the death of the testator and thus at an expense of approximately $80,000, as notional income lost to the estate.
118The applicant's brother had benefited by the expenditure of some $30,000 on renovations on the property, which no doubt improved its value, at the expense of the residuary estate. Accordingly, as the trial judge accepted, the respondents benefited and the residuary estate was diminished in a manner which the testator would not necessarily have anticipated when writing her will. An adjustment of $110,000 in favour of the applicant would therefore have been an appropriate outcome; however, the trial judge expressed a tentative view that additional provision of $100,000 would have been appropriate, a figure from which this Court was not invited to depart and which should be accepted.
119It may be inferred that when the applicant's sister contracted to purchase her current home in Dora Creek, four days after settling the sale of the Cameron Street property which she had inherited, she intended to pay for the purchase out of the proceeds of the sale. The sale price ($695,000) comfortably exceeded the purchase price ($565,000), the difference being $130,000. Seven days after exchange of the contract to purchase Dora Creek (and well before settlement) the applicant's sister had notice of his claim.
120The applicant's brother sold the property he had inherited by a contract entered into a fortnight after he received notice of the applicant's claim. At the time of trial he held a significant sum, equivalent to the sale price, in term deposits.
121In these circumstances, neither respondent had any reasonable basis for resisting an adjustment of the order proposed above in favour of the applicant. Accordingly the trial judge should have ordered payment to the applicant of a sum of $100,000 to be borne equally from the proceeds of sale of the two properties in the estate. If either respondent had invested the proceeds beyond ready recall with notice of the applicant's claim, they should nevertheless bear the burden of meeting the proposed order. However, the estate having been distributed, a notional estate order must be made.
122So far as the respondents resisted such an order on the basis of a lack of particularity in the pleading, the objections should be dismissed for the reasons explained by the President. The matter is therefore within the discretion of the Court.
123The Court must not make a "notional estate order", the whole of the estate having been distributed, unless it has considered "the importance of not interfering with reasonable expectations in relation to property": s 87(a). The predecessor to s 87(a) was s 27(1)(a) of the Family Provision Act 1982 (NSW). In considering the operation of that provision, Master McLoughlin stated in Petschelt v Petschelt [2002] NSWSC 706 at [68]:
"That phrase does not, however, indicate the person by whom those reasonable expectations are held. Clearly the Court must consider the reasonable expectations of the First Defendant in relation to property. By the same token, however, the Court should also consider the reasonable expectations of the Deceased herself in relation to property, and also, possibly, the reasonable expectations of the Plaintiff."
124In Petschelt, the first defendant was the former husband of the deceased who took the family home, held in joint tenancy, by survivorship. After the death of his former wife, he sold the property and bought a new property jointly with the second defendant. The plaintiff was the child of the deceased and the first defendant.
125While it remains true that the section (which has not changed from the 1982 Act) is silent as to whose "reasonable expectations" must be considered, the requirement is a constraint on the making of a notional estate order. It is not sensibly construed as referring to the reasonable expectations of the applicant who wants a share of, but does not own, the property. Nor does it sensibly refer to the expectations of the deceased person, because the court must already have determined that an adjustment in the distribution effected by the will was appropriate: s 89(2). Since a notional estate order will only be made in relation to property which never was, or no longer is, part of the estate, it is unlikely to refer to the expectations of any person other than the person who is the present holder of an interest in the property. To the extent that it held otherwise, the reasoning in Petschelt should not be followed.
126Provision should be made by way of a legacy of $100,000. The Court should designate appropriate property held by the applicant's brother as notional estate of the late Hazel Florence Phillips and order that the applicant receive out of it a legacy of $50,000. The notional estate could be either real or personal property held by him (whether jointly with his wife or otherwise).
127A similar order should be made with respect to the applicant's sister. If she does not have other assets from which the payment can be made, it would be appropriate that the property at Dora Creek be designated notional estate of the deceased. (The evidence did not reveal how the excess of the proceeds of sale of the inherited property had been expended, though no doubt some went to payment of stamp duty and other expenses of the purchase.)
128The respondents sought an opportunity to identify appropriate notional estate to bear the burden of any order made by the Court, in the event that the appeal was upheld. They also sought an opportunity to make submissions on costs. In the absence of particular considerations not presently known to the Court, the respondents would be expected to pay the applicant's costs of the trial and the appeal. They would be entitled to seek a certificate under the Suitors' Fund Act 1951 (NSW) with respect to the costs of the appeal.
129In accordance with the basis on which the matter was left on the hearing of the appeal, they should be given an opportunity to make submissions with respect to the final orders. The Court should now make orders allowing the appeal and setting aside the orders made by the trial judge. The Court should give directions in the form proposed by the President.
130MEAGHER JA: I agree that the orders and directions proposed by Beazley P should be made and, subject to one matter, I agree with the reasons that her Honour gives for the making of those orders and directions.
131In my view, for the reasons given by Basten JA (at [119] to [121]), the burden of a further provision in favour of Brian of $100,000 should be borne equally by Gaye and Gary and accordingly out of property of each designated for that purpose as notional estate. However, I accept that the respondents should be given the opportunity to further address that question having regard to the request which was made by their counsel, and acceded to, that they have a further opportunity to make additional submissions concerning proposed order 5 in the notice of appeal (Tcpt 16/09/13, pp 66-67). That order addresses the property which should be designated as notional estate and does so in a way which leaves open the question whether the provision should be satisfied out of property of one or both of the respondents. One of the reasons underlying counsel's request for that opportunity was that the interests of the respondents are not likely to be the same in relation to the answer which may be given to that question.