Ryan Larraine McGarry v Margaret Berndaette McGarry

Bladwell v Davis & Anor [2004] NSWCA 170 Luciano v Rosenblum (1985) 2 NSWLR 65 CASES CITED : McDougall v Rogers [2006] NSWSC 484 Milillo v Konnecke [2009] NSWCA 109 Singer v Berghouse (No2) (1994) 181 CLR 201

PARTIES : Ryan Larraine McGarry Margaret Bernadette McGarry

COUNSEL : Plaintiff: G. McGrath Defendant: L.J. Ellison SC

SOLICITORS : Plaintiff: Lobban McNally Lawyers Defendant: Allars Mottee Hannaford Solicitors

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

3242/08 Ryan Larraine McGarry v Margaret Bernadette McGarry JUDGMENT 1 HIS HONOUR: This is an application under the Family Provision Act, 1982 ("the FPA") for provision to be made out of the estate or the notional estate or both of the late Michael Gerrard McGarry ("the deceased") who died on 14 March 2007 at the age of 45. 2 By his will dated 21 September 1995, probate whereof was on 26 April 2007 granted to the defendant, his widow, the deceased left the whole of his estate to the defendant. 3 The plaintiff is a daughter of the deceased, who was born on 27 August 1985 out of a relationship between the deceased and Janmaree Walsh. The plaintiff is presently 23 years old. The only other person whose interest may be affected by the outcome of these proceedings is the deceased's only other child, namely Rachel McGarry, who was born to the deceased and the defendant on 25 February 1993 and is presently 16 years old. 4 As a child of the deceased, the plaintiff is an "eligible person" within the meaning of section 6(1) of the FPA. She brings her application under section 7 of the FPA, which provides as follows: " 7 Provision out of estate or notional estate of deceased person

Subject to section 9, on an application in relation to a deceased person in respect of whom administration has been granted, being an application made by or on behalf of a person in whose favour an order for provision out of the estate or notional estate of the deceased person has not previously been made, if the Court is satisfied that the person is an eligible person, it may order that such provision be made out of the estate or notional estate, or both, of the deceased person as, in the opinion of the Court, ought, having regard to the circumstances at the time the order is made, to be made for the maintenance, education or advancement in life of the eligible person".

5 It is well established that the Court follows a two stage approach when considering applications under the FPA. In Singer v Berghouse (No2) (1994) 181 CLR 201, at 209-210 Mason CJ, Deane and McHugh JJ said:

"The first question is, was the provision (if any) made for the applicant "inadequate for [his or her] proper maintenance, education and advancement in life"?…The determination of the first stage in the two-stage process calls for an assessment of whether the provision (if any) made was inadequate for what, in all the circumstances, was the proper level of maintenance etc appropriate for the applicant having regard, amongst other things, to the applicant's financial position, the size and nature of the deceased's estate, the totality of the relationship between the applicant and the deceased, and the relationship between the deceased and other persons who have legitimate claims upon his or her bounty.

The determination of the second stage, should it arise, involves similar considerations. Indeed, in the first stage of the process, the court may need to arrive at an assessment of what is the proper level of maintenance and what is adequate provision, in which event, if it becomes necessary to embark upon the second stage of the process, that assessment will largely determine the order which should be made in favour of the applicant..." 6 As to the first question to be addressed, in one sense, as she received nothing under the will, the provision she received was clearly inadequate. However, that is not how this question must be approached. Mr Ellison of Senior Counsel, who appeared for the defendant, pressed upon me that the authorities, including authorities at the highest appellate level, provide that a testator's obligation to make provision for his widow is paramount and comes ahead of any obligation that he may have to any other person, including his children. 7 He referred me inter alia to the decision of Powell J (as his Honour then was) in Luciano v Rosenblum (1985) 2 NSWLR 65, the decision of the Court of Appeal in Bladwell v Davis & Anor [2004] NSWCA 170, and he specifically drew my attention to the decision of Brereton J in McDougall v Rogers [2006] NSWSC 484 where his Honour helpfully collected the authorities dealing with the obligations of a testator to his widow. 8 I am not sure that I would be prepared to go as far as Mr Ellison would have me go. I consider that a more accurate statement of the law is what I fell from Bryson JA (which whom Ipp and Stein JJA agreed) in Bladwell v Davis, where his Honour said:

"[12] There have been many statements in judicial decisions, including decisions in the Court of Appeal, generally to the effect that primacy of some kind is accorded to claims of widows for proper maintenance and advancement in life, including continuance of housing arrangements which they enjoyed during the lifetimes of their late husbands. These statements are not altogether uniform in expression, and should be understood as made in each case in relation to the facts under consideration; and those facts vary widely and in truth are unique to each particular case. "Widow takes all" is not a rule which has been or could be established by judicial decisions: the Court cannot resign the functions which it has under s 7 of the Family Provision Act 1982 in favour of rules of thumb. A rule which was once followed which practically prevented ordering provision for an adult son who was fit to work has been abandoned.

[13] Observations on the claims of widows were made by Powell J in Luciano v Rosenblum [1985] 2 NSWLR 65 at 69-70 in these terms: It seems to me that, as a broad general rule, and in the absence of special circumstances, the duty of a 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 contingencies.

These observations were not made in the context of a competing claim or proved need by another eligible person, and were introduced by a guarded reference to a general rule and the absence of special circumstances. However they are frequently, almost universally cited in applications where provisions for widows are under consideration". 9 The above passage was recently cited with approval by the Court of Appeal in Milillo v Konnecke [2009] NSWCA 109. 10 Nevertheless, I consider that in the present case, there are no relevant special circumstances, the "broad general rule" referred to above applies and that the deceased's obligation to his widow has primacy to his obligations to all others. Accordingly, in order to determine whether the provision made for the plaintiff was inadequate, I must first consider whether the testator's obligations to his widow have been discharged. In McDougall v Rogers, on the facts before him, Brereton J found that the testator did not have adequate funds even to discharge his obligation to his widow notwithstanding that he left all of his estate to her. Accordingly, the provision made for the plaintiff, who was a child of his (or perhaps more accurately the absence of any provision made for the plaintiff) was not inadequate for the purposes of section 7 of the FPA. His Honour said:

"[54] Despite [the plaintiff's] marginal financial position and other circumstances, in which a legacy by way of advancement would in other circumstances be plainly appropriate, in this case the primacy of the deceased's obligation to his widow, and the insufficiency of his estate adequately to discharge that obligation, combined with the circumstances that [the plaintiff] is able to support himself and in case of need may reasonably look to his mother and stepfather for support and provision, result in the conclusion that a wise and just testator would not have made provision for the advancement in life of [the plaintiff] - not because of the absence of a reasonable need for advancement, but because the available resources did not permit it after satisfying the primary obligation to make proper provision for the maintenance of the widow. At least generally speaking, obligations to maintain are of a higher priority than obligations to advance. The deceased was not obliged to make provision, out of his limited resources, for the advancement in life of [the plaintiff], because he had first to make provision for the maintenance of his widow, and his estate was insufficient adequately to do that. In those circumstances, there was no failure to make adequate provision for [the plaintiff].

[55] Even if that conclusion were wrong, the same considerations would, at the second stage, produce the conclusion that, as a matter of discretion, the limited resources in this estate should be left to provide for the maintenance of the widow. Thus if I were to have concluded that [the plaintiff] had been left with inadequate provision, nonetheless in considering what provision ought to be ordered, I would, for the reasons summarised in the preceding paragraph, decline to order that any provision be made for him". 11 Turning first to the relationship between the deceased and the defendant, I find that it had been a long and harmonious one. They had been married since 1990, and apart from one episode at the end of the deceased's life, there is no evidence before me to suggest the contrary. The deceased and the defendant appear to have led a normal and co-operative married life. 12 The episode to which I allude is that about six weeks before his death, the deceased moved out of the matrimonial home and into his father's house, and was still living there at the time of his death. Nevertheless, the deceased and the defendant appear to have kept in touch, and during that period made further payments towards a cruise that they had booked to go on together with their daughter Rachel. I place little significance on the events of those six weeks and consider that whatever obligations the deceased owed to the defendant immediately preceding his move to his father's house remained unaltered as at the date of his death. 13 I turn then to the financial position of the deceased and the defendant as at the date of deceased's death. Their financial situation was as follows:

(a) The deceased and the defendant were joint owners of the following real estate: (i) the property at 23 Claremont Court, Wattle Grove, which was the family home and was valued at $600,000; (ii) an investment property at 106 Scenic Highway Terrigal, whose value was estimated at $490,000; (iii) another investment property at 641 Towrang Road, Towrang, which was estimated to have a value of $458,000; (iv) a vacant block of land at Lot 1, Longview Road, Big Hill, which was valued at $198,000. The total value of those four properties was accordingly estimated at $1,746,000; (b) A life insurance policy with ING Life Limited with an estimated value of almost $500,000; and (c) An entitlement to superannuation benefits in the sum of $322,000.

14 Thus the aggregate value of the assets available to the deceased and the defendant was $2,568,000. Against that, they were jointly liable for loans in amounts totalling $961,000, leaving a net equity of approximately $1,600,000. 15 In order to answer the first question posed by Singer v Berghouse, it is also necessary to consider the defendant's income and expenditure as at the date the deceased died. There is no direct evidence before me of those matters, but I do have evidence of her income and expenditure position as at 22 September 2008, and as at the present time. I am prepared to infer that subject to certain obvious adjustments that need to be made, her situation has remained largely unchanged. 16 Turning then to the defendant's current income, her position is as follows: (a) She receives wages from the Belmore Returned Services and Community Club Limited, net after tax: $37,000 per annum (b) She enjoys the value of salary sacrifice paid into superannuation of $100 per week, valued at: $5,200 per annum (c) Macquarie Pension Fund net after tax: $16,500 per annum (d) Interest on Macquarie Bank Term Deposit, gross before tax of approximately $7,500 per annum, say after tax: $5,000 per annum 17 The total of the above amounts is about $63,700 per annum after tax. In making that calculation, I have not taken into account the income received from the property at Terrigal as there is no evidence either of the income that was being derived from that property or the expenses which were incurred in respect of it. Nor have I included in this calculation the rental income that she then derived or currently derives from the Towrang property as I propose to exclude expenses related to that property and to the Big Hill property in anticipation of their sale. 18 Likewise there is no direct evidence before the Court as to the defendant's expenditures as at the date that the deceased died. The best that can be done is to consider the defendant's expenditure at the present time and work backwards to determine what her expenditures were at that time. 19 The defendant has estimated her current expenditure at $9,540 per month or approximately $114,000 per annum. However, a more realistic estimate of her monthly expenditure, certainly after calendar 2009 would be closer to $54,000 as a result of the following reductions: (a) Repayments on Towrang and Big Hill: $2,572 p.m. (b) Expenses related Towrang and Big Hill: $571 p.m. (c) Expenses associated with the course undertaken by Rachel at the June Dally Watkins Academy: $1,826 p.m. (d) Total reduction: $4,969 p.m. (e) On an annual basis, the reduction is approximately: $60,000 p.a.

20 By way of explanation, reductions (a) and (b) are made on the assumption that the properties at Towrang and Big Hill will be sold by the end of 2009. Further, reduction (c) has been made on the basis that the sum of $1,826 per month that the defendant currently spends in respect of Rachel's June Dally Watkins course, which is a one year course that she commenced in January 2009, will finish by the end of this year. I am not satisfied with the defendant's evidence to the effect that Rachel may move on to a TAFE course of her choosing at a cost of $25,000 per annum. No evidence has been adduced to corroborate the defendant's assertion that Rachel "may" undertake such a course. It is merely an unsupported assertion and I place little store by it. 21 As calculated above, as at the date of the deceased's death the defendant was left with net assets of $1,600,000, of which the family home represented a value of $600,000. If the defendant were to have liquidated all of her assets (other than the family home) and if she were to have repaid all of the joint debts out of the proceeds, she would notionally have ended up with the sum of $1,000,000. Were she to have invested those funds in an interest bearing deposit, yielding conservatively 5% per annum (interest rates in March 2007 having been much higher than they are today) this would have yielded an additional pre-tax income of $50,000 per annum or, around $35,000 per annum after tax. That amount, added only to her wages, would have provided the defendant with an income of approximately $72,000 per annum after tax and she would still have had the benefit of the tax effective salary sacrifice of $5,200 per annum which was being paid into her superannuation fund. Even if her wages were somewhat less in those days than they are today, her income would have been more than adequate to cover her expenditure of around $54,000 per annum. 22 Accordingly, I find that as at the date of his death, the deceased satisfied the obligations outlined in Luciano v Rosenblum. The defendant widow was secure in her home for the rest of her life and had the capacity to change it. She had available to her an income sufficient to enable her to live in a reasonable degree of comfort and free of any financial worry, and she had available to her a fund of approximately a million dollars to which she might have resort in order to provide herself with such modest luxuries as she might choose and which would have provided her with a hedge against any unforeseen contingency or disaster that life might bring. It is true that she still had her then 14 year old daughter to bring up, but it would also have been true that at some point of time in the not-too-distant future, Rachel could be expected to enter the workforce and either contribute to household expenses or move out of the family home and commence to lead an independent life. 23 It might be added that in the witness box, the defendant presented as a robust, intelligent and capable lady who is likely to hold down her responsible job for many years to come. She has given no evidence of any disability or ill health, nor is there any other evidence to suggest that she was considering retiring, or that she might be forced to retire in the near future for health or any other reasons. She has now been employed in a responsible position by the same employer for the last fourteen years (twelve as at the date of the deceased's death) and although her employer is currently not making profits, it has substantial assets and there is no evidence to suggest that it will go out of business at any time in the foreseeable future. Even if her employer were to merge with another Club, the defendant's past record would suggest that in all probability a suitable position would remain available to her. 24 If not, one could reasonably expect that she would be able to obtain some form of corresponding employment until the time she wished to retire. 25 Having determined that the deceased discharged his primary obligation to the defendant, the second question to be addressed is whether the provision made for the plaintiff was inadequate for her proper maintenance, education and advancement in life. It is at this point that the facts before Brereton J in McDougall v Rogers are relevantly different from the facts of this case. In the case, there were adequate resources to satisfy the deceased's obligations to his widow, and accordingly, in order to address the said second question, the Court must consider all relevant aspects of the plaintiff's circumstances as at the date of the deceased's death. 26 The relationship between the deceased and the plaintiff varied over the years. Presumably as a result of the circumstances of her birth and the subsequent marriage of the deceased to the defendant, there was only a limited amount of contact between the deceased and the plaintiff in her earlier years. As the years passed, and as the plaintiff grew older and more independent, the extent of the contact between her and the deceased increased. The deceased exhibited genuine affection for the plaintiff, although presumably because the plaintiff caused some degree of discomfort to the defendant, the plaintiff did not play any significant role in the deceased's life. The defendant's failure to add the plaintiff's name as a child of the deceased on the deceased's death certificate illustrates the defendant's hostility towards the plaintiff. The defendant had no satisfactory explanation for this most unfortunate omission. Certainly, the absence of an even closer relationship between the plaintiff and the deceased was not the result of any fault on the part of the plaintiff. 27 There is no direct evidence as to the plaintiff's financial circumstances as at the time the deceased died, but there is evidence of her financial circumstances as at May 2008 and as at the date of the hearing. I am prepared to infer that her situation as at 14 March 2007 was substantially the same. 28 The plaintiff has at all times lived with her mother and continues to do so. So far as the evidence reveals, her mother never married and has very limited resources of her own. She is currently 59 years old and is employed as a meat packer. She has no assets of any substance and lives with the plaintiff and with her brother Garry, the plaintiff's uncle. She pays no rent to her brother and has no interest in the property in which she lives. She is there by her brother's grace and favour. 29 Likewise, the plaintiff has no assets of substance, and lives with her uncle and her mother at no cost, on the same basis as her mother. 30 The plaintiff has extensive and debilitating medical problems. She suffers from cystic fibrosis, diabetes, asthma and depression. She needs to regularly consult numerous medical practitioners, including dermatologists, physiotherapists and psychologists. She regularly takes an extensive range of medication (she lists over twenty in her evidence), she is vulnerable to skin cancer, needs orthodontic work as well as some plastic surgery. Not surprisingly, the expenses that she incurs in order to deal with the foregoing medical problems are extensive. 31 She is only able to work part-time and currently earns around $16,000 per annum before tax. She also obtains a disability pension of between $200 and $350 per fortnight, depending on her earnings from her work. I am prepared to infer that her overall circumstances were much the same in May 2007. 32 The plaintiff gave evidence of her various needs. Perhaps the foremost in her mind is a need for a home. It has been submitted on her behalf that she has no security of having a permanent home. The evidence suggests that it is likely that her uncle will permit her and her mother to live in his house for the foreseeable future, but families can fall out from time to time, and even if that did not happen, when the plaintiff's uncle dies, he will have other moral claims operating on him, including a brother who needs assistance. 33 Yet very few 23 year olds own their own home. The plaintiff is described as an attractive young woman, a person who, on the evidence, is a person of strong character. Her evidence is that she hopes one day to have children of her own, and there is no evidence to suggest that there is any reason why she will not be able to marry and live a relatively normal life. For the moment, there is no need for her to move out of what appears to be a perfectly adequate accommodation in a warm family context, with a caring mother and an obviously understanding and generous uncle. 34 Nevertheless, the evidence is clear that a legacy of some kind from the deceased would have represented a significant improvement in the plaintiff's quality of life. She is required to purchase a large volume of prescribed medications and vitamins, she is in urgent need of dental and orthodontic attention, she needs to see physiotherapists and chiropractors and would be assisted by some plastic surgery as a result of scarring that she has suffered and she would benefit by being able to afford a gym membership to assist her keeping her more serious illnesses at bay. 35 Her needs as at the date of her father's death would likely have been much the same. 36 Returning to the financial circumstances of the defendant immediately upon, and as a result of, the death of the deceased, I find that not only had the deceased discharged his primary obligation to provide for his widow in the appropriate manner, but that he did more than that. I find that something less than that which the defendant received would still have adequately discharged the obligations of the deceased. Accordingly, I am satisfied that the provision (or rather the absence of a provision) made for the plaintiff by the deceased was inadequate for her proper maintenance, education and advancement in life. 37 The second question in Luciano v Rosenblum requires the Court to determine what provision (if any) ought to be made for her maintenance, education and advancement in life having regard to the present circumstances. 38 So far as the plaintiff's present circumstances are concerned, I find that they are substantially as has already been described earlier in this judgment. However, the defendant's circumstances have changed since the death of the deceased. 39 Since that time, the property in Terrigal has been sold at a price which I calculate, based on the evidence, was about $35,000 less than that at which it had been valued as at the date of the deceased's death. The properties at Towrang and Big Hill are currently on the market for sale, and have been for some time. The evidence suggests that the likely aggregate sale price for those two properties will fall short of the estimates previously noted by about $155,000. Likewise, the current market value of the family home at Wattle Grove is now valued at $540,000, $60,000 less than it was valued at the deceased's death. 40 The defendant's other assets are currently as follows: (a) She has an amount of approximately $344,000 in a Macquarie Bank pension account. She is unable to access the principal until she reaches the age of 60. The amount that she had originally placed into that account was $450,000, but its value has decreased having regard to the current economic circumstances. The income she receives from that account, which is free of tax, is approximately $16,500 per annum; (b) She has a sum of about $250,000 in a Macquarie Bank term deposit account. The amount she had originally deposited to that account was about $280,000, but she has used some of those funds since that time. She receives an income of about $7,500 per annum before tax, leaving her with what might reasonably be calculated at $5,000 per annum after tax; (c) She has an amount of $103,000 in superannuation with Club Plus. There is no evidence that she receives any income from that fund at the moment and again, she is currently unable to access the capital of that fund; (d) She owns a motor vehicle, some furniture, jewellery and small amounts of money with other financial institutions, all of which she valued at $45,000; (e) Apart from the amounts owing to St George Bank, which are expected to be substantially cleared on her receipt of the proceeds of sale of the properties at Towrang and Big Hill, the defendant's only other liability of substance is her liability for legal costs and disbursement of these proceedings, which she estimates at a little over $35,000. 41 Taking a broad view of the defendant's assets and liabilities, her net asset position has declined since the death of the deceased by somewhere between $300,000 and $400,000, to a large extent as a result of the economic downturn in the past 18 to 24 months. 42 Nevertheless, I consider the defendant's current circumstances are still relatively comfortable. Her home is unencumbered and her current level of income will very likely by the end of this year adequately cover her expenditures without her having to have recourse to her capital. Any shortfall in the meantime could easily be met by the proceeds of her Macquarie Bank term deposit account which currently has a credit balance of over $250,000. It should also be kept in mind that the defendant will reach 60 years of age in under three and a half years, whereupon she will be able to access her substantial funds currently in the Macquarie Bank pension account. 43 Taking into account the financial and other circumstances of the plaintiff and the defendant (and by no means ignoring the needs of Rachel, the deceased's minor daughter) I consider that a legacy of $100,000 is the provision that ought to be made for the maintenance, education and advancement in life of the plaintiff, and that she ought be spared having to pay most of her costs of these proceedings. 44 There is one further matter that needs to be addressed. The whole of the deceased's estate has either accrued to the defendant by reason of her survivorship or has otherwise been distributed to her. As a consequence, there are no actual assets in the estate. 45 As what I propose to do is to order that the legacy be charged on the defendant's Macquarie Bank term deposit account, I propose to make an order pursuant to section 24 of the FPA designating as notional estate of the deceased the amount standing to the credit of the defendant in the said Macquarie Bank term deposit account. In doing so, I have considered the matters that section 27(1) of the FPA requires me to consider and have had regard to the matters referred to in subsection (2) of that section. I do not propose to deal seriatim with each of the paragraphs of those subsections but I am satisfied that having given consideration to each of those matters, and having had regard to the others, there is no reason preventing me from making the order as proposed. 46 I have also kept in mind the requirements of section 28 of the FPA that the requirements of the various subsections of that section are similarly satisfied. 47 So far as costs are concerned, I propose to order that the plaintiff's costs of these proceedings be paid by the defendant out of the notional estate of the deceased, such costs to be assessed on the ordinary basis. The defendant is to have her costs out of the notional estate on the indemnity basis. 48 Accordingly, I propose to order that the said Macquarie Bank account of the defendant be designated as notional estate of the deceased, that the plaintiff be provided with a legacy of $100,000 out of the said notional estate and that its payment be charged on that notional estate. I further propose that the costs of the plaintiff be paid out of the notional estate of the deceased, such costs to be assessed on the ordinary basis and that the defendant have her costs, out of the notional estate on the indemnity basis. 49 The only formal order that I now make is to direct the parties to bring in short minutes to give effect to these reasons and that they do so within 7 days. If there is any disagreement between the parties as to what the short minutes should provide, the matter is to be listed before me for argument by arrangement with my Associate. 50 If there is no disagreement between the parties, the short minutes should be delivered to my Associate so that I can make them in chambers without the parties having to incur any further costs.

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