Smilek v Public Trustee

CATCHWORDS: FAMILY PROVISION - advancement in life - adult stepsons - estate passing to the Crown bona vacantia

LEGISLATION CITED: Family Provision Act 1982 (NSW) Probate and Administration Act 1898 (NSW)

Collins v McGain [2003] NSWCA 190 House v The King [1936] HCA 40; 55 CLR 499 CASES CITED: Hunter v Hunter (1987) 8 NSWLR 573 In the Estate of Puckridge, Deceased (1978) 20 SASR 72 Permanent Trustee Co Ltd v Fraser (1995) 36 NSWLR 24 Singer v Berghouse [1994] HCA 40; 181 CLR 201

John Smilek (1st Appellant) PARTIES: Peter Smilek (2nd Appellant) Public Trustee 58 389 343 989 (Respondent)

COUNSEL: Mr L J Ellison SC (Appellants) Mr D Flaherty (Respondent)

SOLICITORS: MCG Lawyers (Appellants) The Public Trustee (Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40772/07 SC 4990/06

McCOLL JA BELL JA HANDLEY AJA

Thursday 14 August 2008 John Smilek v The Public Trustee Judgment 1 THE COURT: This is an appeal against Windeyer J's dismissal of a claim brought by the appellants, who are the adult stepsons of Tadeusz Kowinski, deceased, for an order for provision under s 7 of the Family Provision Act 1982 (NSW) (the Act). The deceased died on 26 March 2005 leaving a will made in January 1973, by which he gave the whole of his estate to his wife, Irene Stefanie Kowinski, if she survived him by 30 days. The will failed to make provision in the event that the conditional gift failed. Irene Kowinski died one week before the deceased. Subject to this application, his estate thus passes in accordance with the provisions of the Probate and Administration Act 1898 (NSW) which govern the distribution of intestate estates. 2 The deceased migrated to Australia from Poland in 1950. He married his wife, Irene, in 1972. At the time of the marriage she had two sons by an earlier marriage; the appellants, John and Peter Smilek. They were aged 16 and 14 years respectively. Each lived with the deceased and their mother in the family home until leaving home as an adult. The deceased treated the appellants as his own sons. He appears to have had no living relatives. 3 The net value of the estate is around $225,000. The principal asset is the family home. It had originally been owned by Irene Kowinski and her first husband. Following the breakdown of the marriage, the deceased provided Irene with funds to assist her to settle with her former husband on terms that included the transfer of the home into her name. 4 In the absence of next-of-kin who are eligible under the Probate and Administration Act the estate will pass to the Crown as bona vacantia. 5 There was no issue that both the appellants were eligible persons within s 6(1)(d) of the Act, since each was a member of the same household as the deceased and had been at least partly dependent on him. Section 9(1) requires the Court in the case of claimants who are eligible persons under s 6(1)(d) to first determine whether there are factors which warrant the making of the application. His Honour was satisfied that there were, since the appellants were persons who proper thinking members of the public would regard as natural objects of the testamentary bounty of their stepfather. (Red 8.D-F). 6 His Honour next turned to the requirements of s 9(2) of the Act, observing that the question for his determination was whether or not the appellants, or either of them, had been left without adequate provision for their proper maintenance and advancement in life by the deceased. (Red 8.G-H) His Honour found that neither appellant had proved this and, accordingly, that it was the duty of the Court to reject the claims. (Red 11.I-K)

7 Section 9 of the Act provides, relevantly: "(2) The Court shall not make an order under section 7 or 8 in favour of an eligible person out of the estate or notional estate of a deceased person unless it is satisfied that: (a) the provision (if any) made in favour of the eligible person by the deceased person either during the person's lifetime or out of the person's estate … is, at the time the Court is determining whether or not to make such an order, inadequate for the proper maintenance, education and advancement in life of the eligible person. (3) In determining what provision (if any) ought to be made in favour of an eligible person out of the estate or notional estate of a deceased person, the Court may take into consideration: (a) any contribution made by the eligible person, whether of a financial nature or not and whether by way of providing services of any kind or in any other manner, being a contribution directly or indirectly to: (i) the acquisition, conservation or improvement of property of the deceased person, or (ii) the welfare of the deceased person, including a contribution as a homemaker, (b) the character and conduct of the eligible person before and after the death of the deceased person, (c) circumstances existing before and after the death of the deceased person, and (d) any other matter which it considers relevant in the circumstances. (4) Nothing in subsection (3) (a) limits the generality of subsection (3) (b), (c) and (d) and the Court may consider a contribution of the same nature as that referred to in subsection (3)(a) or of a different nature in so far as it considers it relevant under subsection (3)(b), (c) or (d)."

8 The determination of claims under the Act involves the two-stage process explained in Singer v Berghouse [1994] HCA 40; 181 CLR 201 per Mason CJ, Deane and McHugh JJ at 209-210: "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."

Their Honours held that appellate review of the determination of the first-stage question is subject to the principles that apply to the review of discretionary decisions (at 208).

9 The evidence was uncontroversial and in relatively small compass. 10 The first appellant, John Smilek, was born in January 1956. His mother divorced his father in 1970, when he was aged 14. He continued to live with his mother. His mother and the deceased married in 1972. John Smilek remained living in the family home until the age of 20. He married in 1977. He and his wife purchased a home in Bonnyrigg in 1994. They have three children, who, at the date of trial, were aged 27, 18 and 16 years. The eldest was no longer living at home. The younger children were attending school and still living at home. In the 10 years before the trial, John Smilek said that he had worked "on a contract basis" and in his own business. In the period between 2003 and 2005 he had been running a business importing sea-scooters and other specialised equipment. It did not prove to be a successful venture. His total drawings from the business amounted to around $20,000 and over this period he and the family had been dependent on his wife's wages and on savings. At the date of trial, John Smilek was employed by Smorgon Steel Industries as a logistics manager. He was on a salary of $105,000 per annum, together with a car allowance. As the result of expected changes in the steel industry, John Smilek considered that it was very likely that his position would be made redundant. He believed that it would be difficult at his age to compete successfully against younger applicants for jobs. It had taken him three years to secure the job with Smorgon Steel. 11 John Smilek's family home is owned outright. It was valued at $650,000. He and his wife owned two cars, a 1999 Ford and a 1994 Camry, which together were valued at $10,000. Their furniture and personal effects were valued at $15,000. They had $12,000 on deposit. He estimated his business to be worth $50,000. His Honour considered that the evidence about the value of the business was unclear. In oral evidence, John Smilek said that he had operated a business importing goods in partnership with his brother but that they were no longer engaged in this business. At the date of trial, he, John Smilek, was running a business which involved importing goods and selling them on eBay. This business had not commenced making profits but he was hopeful that it would. 12 Each of the appellants inherited money from an uncle more than 10 years before the date of trial. John Smilek had spent his inheritance. 13 John Smilek said that he had not made proper arrangements for his retirement; he had only about $55,000 invested in a superannuation fund. This reflected the fact that over most of the previous decade he had not been in ordinary employment.

14 John Smilek identified a number of specific needs for which he sought provision. These included renovations to his home involving the repair of a leaky bathroom ($10,000), the installation of an air-conditioner ($14,000), the construction of a pergola ($6,150) and the re-painting of the exterior ($6,000). He and his wife would like to buy new cars (in total $55,000). He would like to take the family to visit his mother's and the deceased's birthplaces and arrange for special masses to be held for them ($45,000). He estimated that costs associated with his youngest child attending university would be $15,000. 15 The second appellant, Peter Smilek, was born in December 1958. He left school in 4th Form. He later enrolled at a TAFE College and obtained his Higher School Certificate. He commenced studying for a Bachelor of Science degree at Macquarie University. At this time, he was working part-time as a landscaper. He did not complete the degree and he took up full-time work as a landscaper/labourer. 16 Peter Smilek purchased a home in Telopea in 1992. His mother and the deceased loaned him $50,000 to assist with the purchase. He had repaid about half of this sum prior to his mother's death. Following her death he gave $12,500 to John Smilek so that each might benefit equally from the unrepaid advance. 17 Peter Smilek married in 1997. He and his wife have one child, a son who was born in September 2004. The Telopea property was sold and Peter Smilek and his wife purchased a home in Dundas, which they own free of encumbrances, and which is valued at $520,000. 18 Peter Smilek is the sole shareholder and director of Peter Smilek Pty Ltd, which carries on a landscaping and gardening business. His wife works part-time as a waitress at the Royal Sydney Yacht Squadron in order to supplement the family income. For around eight months a year, he and she both work on weekends, selling costume jewellery and fashion accessories at a market stall. 19 Peter Smilek has $160,000 on deposit in the bank, $140,000 of this sum being the inheritance to which we have referred. His business operates on an overdraft of $20,000. He annexed a summary of the income of the Peter Smilek Pty Ltd Group to his principal affidavit. Total income for the Group in the years 2003-2006 was as follows: 2003 89,986 2004 29,096 2005 40,359 2006 75,497

20 Peter Smilek's work is physically demanding and he does not believe that he will be able to continue working until a normal retirement age. He has $32,000 in a superannuation fund. He also believes that his provision for retirement is insufficient. 21 In his principal affidavit, Peter Smilek identified needs for which he sought provision. These included carrying out renovations to his home. He also said that if he obtained a benefit from his stepfather's estate he intended to invest in a property which would be used to assist his son's education and to provide resources for his retirement. 22 There was evidence of the close relationship that existed between the appellants and the deceased to the time of his death, and of the non-financial contributions that each appellant had made to his welfare. In particular, in the 15 to 18 years before his death, the deceased and his wife were dependent on the appellants to drive them to the shops on various outings, including regular attendance in connection with their membership of the Polish choir.

23 After reviewing the evidence of John Smilek's financial circumstances, his Honour said this: [9] There is no doubt that both of the plaintiffs were good to their mother and to their stepfather. There is no doubt that they contributed to the happiness of the life of their stepfather. However, the Act does not enable the court to make provision to reward good conduct, what it is directed to is to remedy the situation where a particular plaintiff is left without adequate provision for his or her proper maintenance and advancement in life. It was put for Mr John Smilek, as it was put for his brother, Peter Smilek, that their future is uncertain. That may be so, but he is a relatively young man, who, so far, seems to have done reasonably well in life. That is not to say that he is very well off or that there are not some things which he might like. The point is that the Act is not there to provide a wish list for adult children, able to care for themselves, who have up to now made their way satisfactorily in life. The matters referred to by this plaintiff, as to what he would do if he had more money, are natural desires, but they are certainly not matters of necessary expenditure. (Red 9. G-R) 24 His Honour went on to review the evidence of Peter Smilek's financial circumstances. He went on to say: "[11] Like his brother, there are things that he would like to do. He would like to spend some money on his house. He said that he and his brother expected they would share equally the proceeds of the deceased's estate. He has a son, Benjamin, who is three years of age. He says he would like to send him to a Roman Catholic preparatory school and to Marist Brothers High School in due course which would cost in present day money about $6,000 per year. If he continues in work there is no reason to suggest that he will not be able to fund this out of his income, although, of course, it would place some additional pressure on him. He says that the work which he is doing is hard and physical and that he does not think he will be able to do this up to ordinary retiring age, which I take to be about 65 years of age." (Red 10. I-Q) 25 The appellants did not assert that his Honour's reasons revealed any patent error justifying the intervention of this Court. It was their case that the result was unreasonable in all the circumstances, such that it should be inferred that in some way there had been a failure to properly exercise the discretion: House v The King [1936] HCA 40; (1936) 55 CLR 499 at 505. 26 Mr LJ Ellison of Senior Counsel who appeared on the appellants' behalf, pointed to his Honour's remarks at [9] (extracted at [23] above), and submitted that they were indicative of an unduly narrow approach to the consideration of the appellants' proper advancement in life, which did not reflect the trend of decisions in claims brought by able-bodied adult children since the decision in Hunter v Hunter (1987) 8 NSWLR 573. Mr Ellison was also critical of his Honour's characterisation of the needs identified in John Smilek's affidavit as a "wish list". He submitted that a "wish list" was an expression apt to describe expenditures that the overwhelming majority of members of the community would not be able to afford, whereas the appellants' desire to carry out renovations to their homes did not put them in a different category to claimants seeking to be relieved of the burden of mortgage debt. 27 Mr Ellison submitted that, while his Honour's conclusion that adequate provision existed at the date of trial for the appellants' proper maintenance (in the sense of day to day living needs) may be unexceptionable, it was an error to have found that leaving no provision for their advancement in life was adequate provision. His starting point was the statement of King CJ in In the Estate of Puckridge, Deceased (1978) 20 SASR 72 at 77: "The words 'advancement in life' have a wide meaning and application and there is nothing to confine the operation of the provision to an earlier period of life in the members of the family: Blore v Lang (1960) 104 CLR 124, per Dixon CJ at 128. In McCosker v McCosker (1957) 97 CLR 566, the expression was held to be wide enough to embrace the provision of capital for the poultry farming business of the claimant. The word 'proper' is of considerable importance and means proper in all the circumstances of the case: Bosch v Perpetual Trustee Co Ltd [1938] AC 463; McCosker v McCosker at 571. The circumstances include the size of the estate, the needs of the applicants, the nearness or remoteness of the applicant's blood and personal relationship to the deceased, any special claims which the applicants may have on the bounty of the deceased, and competing claims of others." 28 Allied to the submission as to the content of the concept of advancement was Mr Ellison's contention that his Honour had focussed on the necessity to identify some specific need, as distinct from considering more general needs, including the provision for contingencies: Permanent Trustee Co Ltd v Fraser (1995) 36 NSWLR 24; Collins v McGain [2003] NSWCA 190. In Permanent Trustee Co Ltd v Fraser, this Court approved the Master's determination that adequate provision for the proper maintenance and advancement of the 59 year old respondent required secure accommodation for life and "a capital sum to meet exigencies" (per Sheller JA at 47). In Collins v McGain, this Court considered that adequate provision for proper maintenance may require provision for contingencies that are unforseen or no more than mere possibilities (Hodgson JA at [6], Tobias JA at [42]). 29 Mr D Flaherty, who appeared on behalf of the Public Trustee, submitted that his Honour's determination was well open and was not attended by error in any of the respects identified in House v The King. He pointed to the first two of the circumstances forming the first-stage determination in the joint reasons in Singer v Berghouse: the applicant's financial position and the size and nature of the deceased's estate. The net assets of John Smilek (including for present purposes his wife, who is the registered proprietor of the family home) exceed $700,000. His income exceeds $100,000 per annum. The net assets of Peter Smilek (including his wife) exceed $700,000. His family income is approximately $75,000 per annum. The deceased's estate is small. Given that the net assets of each appellant exceeds the size of the estate by more than three times, Mr Flaherty submitted that his Honour's determination could not be said to be "unreasonable or plainly unjust". Nor was it productive of a "substantial wrong".

30 Mr Ellison acknowledged that the applications could have been better presented at trial. That was an appropriate acknowledgment. In our opinion a number of John Smilek's asserted "needs", such as the construction of the pergola and the family visit to Poland and the Czech Republic were rightly characterised as a "wish list". However, the evidence of each appellant that his provision for retirement was insufficient was not challenged. John Smilek is facing the likelihood of redundancy. He does not appear to have qualifications that would assist him to obtain other employment at a comparable salary. His savings are limited and his provision for superannuation at the date of trial was $55,000. Peter Smilek's provision for superannuation at the date of trial was $32,000. Taking into account the substantial sum that he has on deposit, it remains that for a man with a working life of perhaps not more than 10 years (which would take him to 58), his provision for retirement is doubtful particularly for a man who will still have a dependant child at that time. 31 The wish lists were counter productive because they diverted the judge's attention from the real need of the stepsons which was for their advancement in life by additional provision for their retirement.

32 The Court is prohibited from interfering with the distribution of the deceased's estate, save to the extent that is necessary to ensure that adequate provision is made for the appellants' proper maintenance and advancement in life. In determining whether the provision for the appellants is inadequate, the Court is to be guided by consideration of the provision which, in accordance with prevailing community standards of what is right and appropriate, and in the circumstances referred to in s 9, ought to be made: Permanent Trustee Ltd v Fraser at 46. The first two of the considerations in the first-stage determination are not to be assessed in isolation from the other relevant considerations to which their Honours in Singer v Berghouse directed attention. The fact that the deceased's estate is small is in any event a factor of little weight in this case. It would be otherwise if there were competing claims. The appellants are middle-aged stepsons, neither has to-date made sufficient provision for retirement and each is unlikely to be in a position to do so given the probability of unemployment in John Smilek's case and early retirement in Peter Smilek's case. Each appellant had a close relationship with the deceased and each made significant non-financial contributions to his welfare. The deceased made no provision for either appellant in circumstances in which there existed no other claims on his bounty. 33 In our opinion the result in the circumstances that we have summarised above is one that bespeaks error. Taking into account prevailing community standards of what is right and appropriate, and the considerations to which we have referred, the provision for the proper maintenance and advancement in life of each appellant is inadequate. The second-stage of the determination requires the Court to decide what provision ought to be made for each appellant out of the deceased's estate. The determination of this question involves similar considerations to those in the first-stage determination. Having regard to the size of the deceased's estate, and the absence of competing claims, we consider that an appropriate order is that provision be made out of the estate of the deceased, such that each of the appellants receive 50 per cent of the net residue after payment out of the testamentary costs and the costs of this litigation. For these reasons, we make the following orders:

ORDERS 1. Appeal allowed. 2. Set aside the orders made on 22 October 2007. 3. In lieu thereof, each of the appellants is to receive a one half share of the residuary estate of the deceased. 4. The parties' costs of the appeal and the trial are to be paid out of the estate of the deceased, in the executor's case on an indemnity basis.

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