Smith v Johnson

Court of Appeal (NSW)|2015-08-26|Before: Macfarlan JA, Ward JA, Kunc J, MacFarlan JA

Solicitors: Bognar Legal (First and Second Appellants) Mark Rahme & Associates (Respondent) File Number(s): 2014/364390 Decision under appeal Court or tribunal: Supreme Court of New South Wales Jurisdiction: Equity Division Citation: [2014] NSWSC 1682 Date of Decision: 27 November 2014 Before: Kunc J File Number(s): 2013/274991

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Statutory Framework

Part 3.2 of the Succession Act provides for family provision orders. An "eligible person" may apply to the Court for a family provision order in respect of the estate of a deceased person. [2] An eligible person includes a child of the deceased and a person who was wholly or partly dependent on the deceased and who was a member of the deceased's household. [3]
Sections 59 and 60 of the Succession Act relevantly provide as follows: "59 When a family provision order may be made (1) The Court may, on application under Division 1, make a family provision order in relation to the estate of a deceased person, if the Court is satisfied that: (a) the person in whose favour the order is to be made is an eligible person, and … (c) at the time when the Court is considering the application, adequate provision for the proper maintenance, education or advancement in life of the person in whose favour the order is to be made has not been made by the will of the deceased person, … . (2) The Court may make such order for provision out of the estate of the deceased person as the Court thinks ought to be made for the maintenance, education or advancement in life of the eligible person, having regard to the facts known to the Court at the time the order is made. … 60 Matters to be considered by Court (1) The Court may have regard to the matters set out in subsection (2) for the purpose of determining: (a) whether the person in whose favour the order is sought to be made (the "applicant") is an eligible person, and (b) whether to make a family provision order and the nature of any such order. (2) The following matters may be considered by the Court: (a) any family or other relationship between the applicant and the deceased person, including the nature and duration of the relationship, (b) the nature and extent of any obligations or responsibilities owed by the deceased person to the applicant, to any other person in respect of whom an application has been made for a family provision order or to any beneficiary of the deceased person's estate, (c) the nature and extent of the deceased person's estate … (d) the financial resources (including earning capacity) and financial needs, both present and future, of the applicant, of any other person in respect of whom an application has been made for a family provision order or of any beneficiary of the deceased person's estate, … (g) the age of the applicant when the application is being considered, … (j) any evidence of the testamentary intentions of the deceased person, including evidence of statements made by the deceased person, … (m) the character and conduct of the applicant before and after the date of the death of the deceased person, … (p) any other matter the Court considers relevant, including matters in existence at the time of the deceased person's death or at the time the application is being considered."

The Estate

Mrs Johnson's estate at her death comprised mainly term deposits, the family home having been sold some years earlier because Mrs Johnson had been placed in a nursing home in 2008. However, assets of the estate also included debts due by Andrew to the estate amounting to about $480,000. These debts arose out of costs orders made against Andrew in intra-family litigation in which he had been involved.
By the date of the hearing, Andrew's indebtedness to the estate had been reduced by the set off of the interim distribution from the estate and by applying a portion of a family provision order Andrew had obtained from the estate of Andrew Snr. [4] The primary Judge found that the value of assets in the estate at the date of the hearing was approximately $956,000, comprising:

$877,000 in cash;
$48,000 in shares; and
$31,000 owed to the estate by Andrew.

At the date of the trial, the estate had incurred costs of approximately $72,000 in relation to Andrew's Succession Act claim. Andrew's costs, on a solicitor and client basis, were estimated at $155,000.
The primary Judge noted that if the appellants' costs of Andrew's Succession Act claim were deducted from the estate, there would be a balance of $884,000 ($956,000 less $72,000). [5] If Andrew received one third of that amount and no costs orders were made in his favour, he would receive a cash distribution of approximately $294,000. In that situation, he would not be relieved of his debt of $31,000 due to the estate and would be required to meet his own costs of $155,000.
His Honour calculated that if Andrew's own costs were paid out of the estate, but on the ordinary basis, the balance of the estate would amount to $768,000 ($884,000 less $116,000, the latter figure presumably being his Honour's estimate of Andrew's costs assessed on the ordinary basis). [6] If Andrew were to receive a distribution of one third of this sum, he would be paid approximately $256,000. Unless relieved of his indebtedness to the estate, he would remain liable to repay the sum of $31,000 to the estate. He would have to meet the balance of his solicitor and client costs, apparently amounting to about $39,000.
The effect of the primary Judge's orders is that Andrew is to receive a legacy of $500,000 in lieu of his remaining entitlement under the Will and is also to be forgiven the debt of $31,000 he owes to the estate. The balance of the estate is therefore reduced to $237,000 ($768,000 less $531,000). The total benefit accruing to Andrew from the estate if the orders remain in place is $937,312.93 ($500,000.00 plus $406,312.93 plus $31,000.00). However, $437,312.93 of this amount has been applied in reduction of Andrew's indebtedness to the estate. Under the primary Judge's orders, Andrew's costs are to be paid out of the estate on the ordinary basis, but he would have to pay the balance of his solicitor and client costs out of the legacy of $500,000.

Andrew

Andrew was born in 1962. The primary Judge found that Andrew has never held a job for more than a short period and has not had any form of gainful employment since 2000. He has been "dogged by personality and psychiatric difficulties" that have impaired his adult life.
Andrew always lived with his parents, who met his living expenses. Andrew's parents supported him in various unsuccessful business ventures, giving him well over $300,000 for the purpose. Andrew lived in his parents' home rent free until May 2011.
As Mrs Johnson's mental and physical health declined from about 2004, Andrew became her principal carer. From 2006, he received a Centrelink carer's allowance. His Honour found that Andrew's role as carer became single-minded to the point of obsessiveness, resulting in the protracted litigation involving the family.
The primary Judge summarised Andrew's position at the trial in rather stark terms: [7] "Andrew is now a 52 year old man who has no tertiary qualifications, no superannuation, no earning capacity and, based on the psychiatric evidence, has no real prospects of ever finding employment. He has respiratory problems (including sleep apnoea) and is overweight, along with some other less serious physical ailments. Most significantly, he has been assessed as having a permanent psychiatric condition (comprising major depression, a high level of anxiety and post-traumatic stress disorder) which is coupled with a significant lack of insight into his condition. That lack of insight makes him non-compliant with the limited treatment options available. Andrew's condition was evident to the Court as he gave his evidence. He told the Court with great sincerity that, with the benefit of whatever additional provision might be made for him, he wished to enter into a relationship, undertake study and find employment. While those outcomes are much to be hoped for, and any right thinking person can only wish Andrew well in achieving them, his very sincerity demonstrated both his lack of insight and the pessimistic prognosis he would have to overcome to make those hopes a reality. Andrew has no assets to speak of other than a few thousand dollars remaining from the provision he received from his late father's estate. His only income is a disability support pension with various statutory supplements including rent assistance. He is living in rented accommodation and his expenses (which do not appear to be exorbitant) exceed his income, gradually depleting what little capital he has left."

Karen

Karen was aged 55 at the date of the hearing. She has been married to Michael, aged 60 at the date of the trial, since 1985. Karen and Michael have three adult children.
The primary Judge found that Karen and Michael had unencumbered joint assets, primarily their home in Bellevue Hill, valued at about $1,100,000. Michael had assets, mostly superannuation, of $800,000. In 2014, he received $208,000 from his late father's estate, with an expectation of a further $560,000. Karen retained about $350,000 of the interim distribution made to her from Mrs Johnson's estate.
Karen, Michael and the members of their immediate family are in good health.

David

David was 54 at the hearing. He is divorced and has two teenage children who mostly live with him. He suffers from colour blindness, dyslexia and sciatica.
David owns his own home valued at $1,400,000. He applied his share of the interim distribution to discharge debts, including his home mortgage.
David took redundancy in 2008 and has not been employed since. He does some handyman and contract work, but most of his modest income is derived from renting out the bottom half of his home.

The Litigation

Andrew Snr died intestate on 5 July 2007. Andrew lodged a caveat on 12 March 2008, requiring that no grant of administration of the estate be made without notice to him. Karen brought proceedings in the Equity Division that resulted in her receiving a grant of Letters of Administration of the estate on 4 March 2009. [8]
In 2007, the Guardianship Tribunal appointed the Public Trustee as Mrs Johnson's guardian. On 6 July 2009, Palmer J rejected an application by Andrew to have himself appointed as the financial manager of his mother's affairs in place of Karen. [9]
In the meantime, on 11 April 2008, Mrs Johnson, by Karen as her tutor, commenced proceedings against Andrew. In effect, Mrs Johnson sought declarations and orders requiring Andrew to return the proceeds of two cheques totalling $540,000 signed by Mrs Johnson on 17 May 2007. One cheque was made payable to Andrew and Andrew Snr, and the other was made payable to Andrew alone. By the time the proceedings were instituted Andrew Snr had died.
The "money case", as the parties described it, was heard over five days, from 18 to 22 May 2009. Mrs Johnson was represented by senior counsel. Andrew was unrepresented at the hearing, although he had previously been represented in the proceedings.
In a judgment delivered on 9 June 2009, [10] Forster J held that Mrs Johnson was entitled to rely on the principles of "catching bargains" to recoup the moneys. His Honour gave these reasons for his conclusion: [11] "[95] … [Mrs Johnson] obtained no benefit from the transaction under challenge, it being the voluntary disposition by her of a substantial sum of $540,000. No contractual or other obligations were assumed by the recipients, for example to utilise the funds for her benefit. It might have been the subjective intention of [Andrew Snr] and [Andrew] to ensure that [Mrs Johnson] was well looked after in her old age, but no enforceable legal obligation arose out of the transaction. Indeed, as events subsequently unfolded, some of those funds have been used by [Andrew] for his own private purposes. It does not assist [Andrew] to say that [Mrs Johnson] always wanted him looked after. From [Mrs Johnson's] point of view, this was a totally disadvantageous transaction. [96] It is also quite clear in light of [Mrs Johnson's] mental condition that she was a person who was at a special disadvantage vis-a-vis [Andrew Snr] and [Andrew]. No attempt was made to provide her with independent advice of a legal, financial or of any other nature. Nor were any steps taken to obtain the assistance of any health care professional or government bodies. Indeed, I find that the purpose of the transaction and its timing was precisely to ensure that her funds were removed before the Guardianship Tribunal made orders dealing with the control of [Mrs Johnson's] financial affairs. [97] Not to put the matter too finely, the intention of [Andrew] and [Andrew Snr] was to take financial advantage of [Mrs Johnson] by procuring her to sign the cheques that resulted in the transfer to them of the $540,000. I do not impute immoral or dishonest motives either to [Andrew] or [Andrew Snr]. Undoubtedly in their own minds they were doing what they considered was beneficial not only for themselves but also for [Mrs Johnson]. However, the subjective motivation of [Andrew] and [Andrew Snr] are not the determinative factors here. I must consider the matter from the point of view of [Mrs Johnson] who was detrimentally affected as a result."
Forster J declared that the proceeds of certain bank accounts in Andrew's name were held in trust for Mrs Johnson. Judgment was also given for Mrs Johnson against Andrew in the sum of $100,055.18, being damages by reason of his conduct in spending some of the funds on himself. Andrew was subsequently ordered to pay Mrs Johnson's costs of the proceedings.
Andrew unsuccessfully appealed to the Court of Appeal against Forster J's decision. [12] He then unsuccessfully applied for leave to appeal to the High Court. [13]
Following contested costs assessments, Andrew was required to pay $336,879 in costs in respect of the money case decided by Forster J and costs of $106,318.59 in respect of his unsuccessful appeal to the Court of Appeal.
On 31 January 2008, Andrew applied for a family provision order out of the estate of Andrew Snr. The actual estate was quite small because Andrew Snr's principal asset was the jointly owned matrimonial home, which had passed on his death to Mrs Johnson by right of survivorship. By an amended summons filed on 15 December 2009, Andrew sought a declaration as to the extent of Andrew Snr's notional estate that could be the subject of a family provision order.
In a judgment delivered on 16 March 2010 in the family provision proceedings, Macready AsJ noted that Andrew had "obvious needs" if the home was sold, specifically for accommodation and for funds to meet his liabilities. [14] As Andrew had not put forward any evidence of the cost of alternative accommodation, Macready AsJ considered that the only approach was to award a capital sum which might assist Andrew with rented accommodation. His Honour ordered that Andrew receive a legacy of $400,000 payable out of Andrew Snr's notional estate, being property of Mrs Johnson. His Honour directed that up to $200,000 of this sum could be offset against Andrew's indebtedness to Mrs Johnson and that the balance should be paid to him.
On 16 November 2010, Andrew commenced proceedings in the Equity Division seeking orders for a statutory will to be made on behalf of Mrs Johnson. The proceedings were defended by the New South Wales Trustee and Guardian, who authorised Karen as Mrs Johnson's financial manager to protect her interests. The application was dismissed on 20 July 2011 and Andrew was subsequently ordered to pay costs. [15] Andrew apparently paid $27,860.00 on 11 October 2013 in settlement of the costs order.
Andrew continued to live in his parents' former matrimonial home after Mrs Johnson had been placed in a nursing home. In 2011, Mrs Johnson, again by her tutor Karen, commenced proceedings against Andrew seeking an order for possession of the former matrimonial home at Lindfield. The proceedings were discontinued on 12 May 2011, when Andrew vacated the Lindfield property. The property was subsequently sold.
Although the primary Judge made no reference to criminal complaints made by Andrew, it appears that he made several unsuccessful attempts to have Karen charged with criminal offences. There is no material suggesting that these complaints had any substance.

The Primary Judgment

The primary Judge recounted the history of the litigation in which Andrew had been involved. His Honour found [16] that as a result of the various costs orders Andrew owed Mrs Johnson's estate $480,305.08, plus interest. This debt had been paid partly through the offset from the family provision order made out of Andrew Snr's notional estate and partly through the offset from the interim distribution out of Mrs Johnson's estate. The debt of $31,000 owed by Andrew to Mrs Johnson's estate at the date of the hearing represented unpaid interest. [17]
His Honour said that, in practical terms, the litigation: [18] "all of which was either initiated by Andrew or taken as a consequence of his conduct, resulted in a diminution in the size of Mrs Johnson's estate to the extent of any irrecoverable costs in relation to the litigation and the various costs assessments (including any difference between solicitor/client and party/party costs). Because it was applied to reduce his debt to the estate, Andrew's cash position was not improved by the interim distribution. Furthermore, rather than applying what funds he did receive from his family provision action against his father's estate towards the purposes identified by Macready AsJ (especially accommodation), Andrew conceded that he made a deliberate decision to expend more than half of those funds to pay for lawyers in subsequent proceedings, leaving himself with a small amount of capital which he has now almost completely expended on ordinary living expenses."
The primary Judge found that the provision made in the Will was not adequate for Andrew's proper maintenance, education or advancement in life. [19] His Honour's reasons, in summary, were as follows: [20]

In cash terms, the value of the provision for Andrew was between $256,000 and $294,000, depending on the costs consequences of the proceedings.
Andrew's financial position was extremely poor and he had neither assets nor earning capacity.
While much of Andrew's conduct may have been misguided, he had not engaged in anything in the nature of disqualifying conduct. In particular, Forster J in the money case had not imputed immoral or dishonest motives to Andrew.
Andrew's financial and personal circumstances were very much worse than those of his siblings.
Prevailing community standards supported further provision being made for Andrew: "Without further provision the "in hand" amount Andrew will in fact receive would enable him to pay for little more than a basic studio or one bedroom unit in western Sydney, a second hand car and leave him with little or no capital for any discretionary spending or a buffer against vicissitudes. That result demonstrates that the "in hand" amount is not adequate for Andrew's proper maintenance and advancement in life."
Andrew had always been dependent on his parents and had no partner who could assist him. The community would expect there to be provision to fulfil Andrew's ongoing dependency on his mother where assets were available to do so.

In determining what provision should be made for Andrew, his needs had to be taken into account. He needed his own accommodation, a sum for discretionary expenditure and a "buffer against vicissitudes". [21]
His Honour referred to each of the matters identified in s 60(2) of the Succession Act. In doing so, he made the following observations: [22]

Andrew's contribution to Mrs Johnson's welfare [23] was of less weight than in other cases because Andrew had received substantial support from his parents.
The benefits received by Andrew from Mrs Johnson [24] during her lifetime required any provision to be less than might have otherwise been allowed.
The correct inference from the evidence, including concessions readily made by Karen, was that Mrs Johnson's testamentary intentions [25] were that Andrew should have somewhere of his own to live and proper provision for the remainder of his life.

The primary Judge was satisfied "that sufficient, but not over generous provision should be made for Andrew" to meet the needs previously identified. His Honour dealt with Andrew's need for accommodation as follows: [26] "[95] Insofar as accommodation is concerned, the parties put forward evidence of the cost of apartments in various parts of Sydney… Karen and David submitted that a studio style apartment or moving to smaller accommodation outside of Sydney would be appropriate. Andrew submitted that some weight should be given to his life long connection with the Lindfield area. It will be appreciated that these submissions represented extremes in terms of the amount of an allowance for Andrew to purchase accommodation. [96] The proper outcome lies somewhere in the middle. Andrew has interests (in particular as an activist in relation to the area referred to as West Papua) and some friends. These considerations suggest, if otherwise possible, that a two bedroom apartment would be appropriate to provide a separate combined work space and visitor bedroom if required. In terms of location, the majority of Andrew's connections fall within the greater Sydney metropolitan area and any determination by the Court should enable him to remain in that area, although not in as expensive an area as Lindfield. [97] Andrew told the Court that he could live in an area like St Mary's, where he had a good friend. Without committing Andrew to live in that particular suburb, there was evidence of the cost of two bedroom units in that part of Sydney ranging between $270,000 and $425,000. On the basis of that evidence, the Court concludes that an allowance of $380,000 should enable Andrew to purchase a modest two bedroom unit in western Sydney (including transaction and moving costs)."
The primary Judge considered that an allowance of $30,000 should be made to cover dental work and medical treatment, the purchase of a second hand car and limited discretionary spending. In addition, his Honour allowed $90,000 for vicissitudes, for these reasons: [27] "The likelihood is that Andrew's primary source of income will continue to be the disability support pension for the rest of his life. Having that income with his own home and car should ensure a simple, but nonetheless, comfortable lifestyle of the kind which the Court is satisfied both Mrs Johnson would have wanted for Andrew and community standards would suggest is appropriate in the circumstances of this case. Those same considerations support the provision of a buffer against the vicissitudes which Andrew may encounter over the next 20 or more years, including ill health."
Finally, the primary Judge addressed what he described as the "ultimate discretion" as to whether an order should be made. Notwithstanding the submission put on behalf of the appellants that Andrew's predicament was his own fault, his Honour was satisfied that the matters to which he had previously referred justified exercising the discretion in Andrew's favour. He added this observation: [28] "Whilst it is true that Andrew would have been unlikely to require (or be entitled to) a family provision order if he had not engaged in the litigation which he did, in the circumstances of this case his conduct does not provide a proper basis for refusing to exercise the Court's discretion in his favour. Andrew's conduct as a litigant was not malicious, in bad faith, spiteful or otherwise deliberately determined to deplete his mother's estate or do economic harm to the other beneficiaries. Such conduct could, in an appropriate case, warrant the Court determining at the ultimate stage not to exercise its discretion to make a family provision order in favour of a plaintiff. However, in this case the Court finds that Andrew's conduct was well intentioned but misguided and possibly irrational, and materially influenced by the mental health difficulties from which Andrew suffers."

Grounds of Appeal

The appellants' notice of appeal contained six grounds, as follows: "1. His Honour's discretion miscarried in making any (further) provision for the respondent. 2. His Honour's discretion miscarried … in not treating the moneys which were to be applied in the repayment of the respondent's debts to the estate as part of the provision made for the respondent at the time of hearing. 3. His Honour erred in finding the consideration (as referred to in section 60(2)(h)) received by the respondent was not adequate … in circumstances where, in fact, inter alia, it was as a result of the Respondent's own conduct that he was not able 'to build up any assets to which he could not have recourse'. 4. His Honour erred in finding that an expressed intention … of the deceased that the respondent should be given sufficient [moneys] to purchase accommodation should be satisfied, in circumstances where had the respondent not brought the various forms of litigation he did, he would have had sufficient moneys to purchase accommodation. 5. His Honour erred in making provision to enable the respondent to buy a two bedroom apartment when, if no provision had been made, he respondent cold have purchased a studio or smaller apartment. 6. His Honour erred in finding the respondent's 'conduct as a litigant was not malicious, in bad faith, spiteful or otherwise deliberately determined to deplete his mother's estate or do economic harm to the other beneficiaries' when the findings … demonstrate all litigation was brought for the respondent's benefit and had the effect of reducing his own and the deceased's assets."

Appellants' Submissions

Mr Ellison SC, who appeared with Ms Bennett for the appellants, accepted that the primary Judge's decision involved the exercise of discretion and could be set aside only if the discretion had miscarried. He also accepted that the primary Judge's statement of the principles relevant to a claim by an adult son was unexceptionable. He submitted, however, that the result reached by the primary Judge was so unreasonable or unjust as to bespeak error. Mr Ellison supported the submission that the primary Judge's discretion had miscarried by reference to Grounds 2-6 in the Notice of Appeal.

Ground 3

Mr Ellison's starting point, reflected in Ground 3 of the Notice of Appeal, was that it was Andrew's conduct that was responsible for reducing the net value of the estate. Had there been no litigation, so Mr Ellison contended, the estate would have been enlarged by about $1,000,000 and Andrew would have received one third of that amount in addition to other distributions under the Will. Had that occurred, no finding could have been made that the Will had not made proper and adequate provision for Andrew's maintenance and advancement in life. Mr Ellison also referred to evidence suggesting that the estate had been depleted by about $183,000 in irrecoverable costs incurred in pursuing the money case against Andrew (including the appeal and what was said to be an unusually complex costs assessment) and in defending the statutory will case brought by Andrew.

Ground 2

Mr Ellison submitted that the primary Judge incorrectly disregarded the interim distribution received by Andrew. While the interim distribution produced no moneys in Andrew's hands, it represented a benefit to him in that it allowed him to become very nearly debt free.

Ground 4

Mr Ellison contended that the primary Judge's finding that Mrs Johnson had manifested a testamentary intention (although not in the Will) that she wanted each child to be set up as well as could be done travelled beyond the legislative regime. In any event, but for Andrew's conduct, he could have had more than adequate accommodation.

Ground 5

Mr Ellison's written submissions contended that the primary Judge should not have awarded Andrew an amount determined by the cost of purchasing a two bedroom unit. Andrew had sufficient resources available to him from the yet to be distributed estate to purchase a one bedroom unit in an area in which he was prepared to live. There was no evidentiary basis for a finding that Andrew needed a two bedroom unit in order to have satisfactory accommodation.

Ground 6

Mr Ellison submitted that the primary Judge should have found that Andrew was determined to deplete Mrs Johnson's estate and conducted litigation in a way designed to bring about that result. Apart from the litigation Andrew initiated, his conduct in appropriating $540,000 from Mrs Johnson's bank account was a deliberate act which caused economic harm to Mrs Johnson and, after her death, to her estate.

Andrew's Submissions

Mr Lawrence, who appeared for Andrew, submitted that the primary Judge had correctly stated the principles and that he had not committed any error that would vitiate the exercise of his discretion. Mr Lawrence contended that the primary Judge's assessment of Andrew's needs was not so unreasonable or unjust as to require the intervention of this Court.

Principles

The primary Judge in the present case adopted what has usually been described as a "two stage process". He first considered whether the Will had not made adequate provision for Andrew's proper maintenance and advancement in life and answered that question "yes". [29] His Honour then considered what provision should be made for Andrew having regard to the matters identified in s 60(2) of the Succession Act and concluded that the appropriate provision "in hand" was $500,000.
Different views have been expressed as to whether a two stage approach continues to be mandatory or even appropriate under the Succession Act, having regard to the differences in the current statutory language compared with the Family Provision Act 1982 (NSW). [30] The parties in the present case appeared content with the primary Judge's approach and neither suggested that his Honour had erred in taking that approach.
The parties also agreed that both determinations made by the primary Judge involved evaluative assessments to which the principles governing appellate review of discretionary decisions apply. It follows that the appellants, in order to set aside the primary Judge's determinations, must show: [31] "an error of principle; a material error of fact; a failure to take into account some material consideration, or the converse; or that the result is unreasonable or plainly unjust so as to bespeak error of such a kind."
The primary Judge followed the general principles stated by Hallen J in Camernik v Reholc [32] as applicable to a family provision claim by an adult child. The parties to the present appeal did not challenge the correctness of those principles, which have been referred to with approval in this Court. [33] The relevant passage in Hallen J's judgment is as follows: "In relation to a claim by an adult child, the following principles are useful to remember: (a) The relationship between parent and child changes when the child leaves home. However, a child does not cease to be a natural recipient of parental ties, affection or support, as the bonds of childhood are relaxed. (b) It is impossible to describe in terms of universal application, the obligation, responsibility, or community expectation, of a parent in respect of an adult child. It can be said that, ordinarily, the community expects parents to raise, and educate, their children to the very best of their ability while they remain children; probably to assist them with a tertiary education, where that is feasible; where funds allow, to provide them with a start in life, such as a deposit on a home, although it might well take a different form. The community does not expect a parent, in ordinary circumstances, to provide an unencumbered house, or to set his, or her, children up in a position where they can acquire a house unencumbered, although in a particular case, where assets permit and the relationship between the parties is such as to justify it, there might be such an obligation. (c) Generally, also, the community does not expect a parent to look after his, or her, child for the rest of the child's life and into retirement, especially when there is someone else, such as a spouse, who has a primary obligation to do so. Plainly, if an adult child remains a dependent of a parent, the community usually expects the parent to make provision to fulfil that ongoing dependency after death if he or she is able to do so. But where a child, even an adult child, falls on hard times, and where there are assets available, then the community may expect a parent to provide a buffer against contingencies; and where a child has been unable to accumulate superannuation or make other provision for their retirement, something to assist in retirement where otherwise they would be left destitute. (d) If the applicant has an obligation to support others, such as a parent's obligation to support a dependent child, that will be a relevant factor in determining what is an appropriate provision for the maintenance of the applicant … (e) There is no need for an applicant adult child to show some special need or some special claim. (f) The adult child's lack of reserves to meet demands, particularly of ill health, which become more likely with advancing years, is a relevant consideration. Likewise, the need for financial security and a fund to protect against the ordinary vicissitudes of life, is relevant. In addition, if the applicant is unable to earn, or has a limited means of earning, an income, this could give rise to an increased call on the estate of the deceased. (g) The applicant has the onus of satisfying the court, on the balance of probabilities, of the justification for the claim." (Citations omitted.)

Andrew's Conduct

Mr Ellison's principal contention, in substance, was that the primary Judge should have found that Andrew had brought on himself his financial difficulties and that his conduct had unjustifiably diminished Mrs Johnson's estate. According to Mr Ellison, his Honour's failure to make these findings vitiated his conclusion that the Will did not make adequate provision for Andrew's proper maintenance and advancement in life. This contention covered Grounds 2 and 3 of the Notice of Appeal.
The contention has some force. Andrew's conduct in causing his mother to give away $540,000 necessitated what became protracted and disproportionately expensive litigation to retrieve the funds. While the funds were ultimately recovered and Andrew was required to pay Mrs Johnson's costs of the proceedings, as Mr Ellison pointed out the estate was diminished by the difference between the costs recovered from Andrew and the solicitor and client costs incurred on Mrs Johnson's behalf. To the extent that the litigation, including the unsuccessful appeals, can be attributed to Andrew's conduct, it caused him to be hundreds of thousands of dollars worse off than if he had never taken the money or if he had not resisted the demand to repay it. Moreover, the primary Judge found that Andrew made a deliberate decision to use most of the funds obtained from his father's notional estate to pay for lawyers in subsequent legal proceedings, rather than to acquire the accommodation he needed.
Nonetheless, there is a difficulty with the appellants' submissions in that they do not distinguish between the various aspects of Andrew's conduct. The litigation Andrew initiated, although undoubtedly burdensome and distressing to his siblings, had a relatively modest impact on the value of Mrs Johnson's estate. The litigation appears to have had a considerably greater impact on Andrew's own financial position, notably by consuming the greater portion of the funds released to him under the orders made in his family provision claim against his father's estate. However, the most substantial contribution to Andrew's parlous financial position at the date of the trial was the liability of about $448,000 he incurred to Mrs Johnson in consequence of his unsuccessful defence of the money case.
The primary Judge implicitly accepted that if Andrew's conduct as a litigant had been malicious or deliberately designed to inflect economic harm to his mother's estate or other beneficiaries, it may have been appropriate to refuse to make a family provision order in Andrew's favour. But his Honour found that Andrew's conduct: "was well intentioned but misguided and possibly irrational, and materially influenced by [his] mental health difficulties." Clearly enough, his Honour also considered that Andrew's "single minded" and "obsessive" campaign to restore his mother to his care was associated with his psychiatric condition.
In his oral submissions, Mr Ellison suggested that since Andrew had given instructions in the litigation he commenced and sometimes acted on his own behalf in that litigation, he should be held responsible for the financial consequences of that litigation. This, in my view, is not a sound criticism of the primary Judge's findings. His Honour referred to evidence indicating that Andrew suffered from a serious and permanent psychiatric condition that influenced his propensity for litigation, as well as rendering him unfit for employment. Just as physical disabilities can and should be taken into account in assessing the needs of a claimant seeking a family provision order, it can hardly be an error to take into account psychiatric disabilities. The evidence amply supported his Honour's findings as to the underlying causes of Andrew's behaviour in obsessively pursuing futile litigation.
The primary Judge's conclusion that Andrew's conduct in initiating and pursuing litigation was not a basis for declining to make a family provision order did not involve any misapprehension of the evidence or any other discretionary error. The primary Judge fully appreciated that Andrew's actions in initiating litigation had contributed to his financial difficulties. However, his Honour attributed Andrew's conduct to his psychiatric condition and concluded that it was not malicious or deliberately designed to conflict economic harm on others. In these circumstances, the primary Judge was entitled to assess Andrew's needs and the adequacy of the provisions under the Will by reference to his financial circumstances at the date of the trial, without holding him responsible for the adverse financial consequences of the litigation he initiated.
Andrew's conduct, insofar as he influenced his mother to write the two cheques and resisted the claim to repay the money, involves different considerations. Andrew did not initiate the money case, but his actions triggered the need for litigation to recoup the funds. The primary Judge did not find that Andrew's psychiatric condition caused him to persuade his mother to hand over $540,000. His Honour did rely, however, on Forster J's refusal to impute immoral or dishonest motives to Andrew, even though Andrew used a significant proportion of the funds for his own purposes.
Perhaps not all decision-makers would have given so little weight to Andrew's conduct in taking money from his mother as did the primary Judge. But the primary Judge was clearly aware of and took account of Andrew's actions in causing Mrs Johnson to pay over $540,000 and in using some of the money for his own purposes. I do not think it can be said that his Honour made a material error of fact or failed to take into account that Andrew's liability to pay costs reduced his own assets and that his conduct diminished, to some extent, the value of Mrs Johnson's estate. While the costs generated by the money case appear to be grossly disproportionate to the amount at stake, there was no evidence that Andrew's conduct of the proceedings was responsible for inflating the costs. I do not think that there is any substance in the appellants' challenge to the primary Judge's finding that Andrew's conduct as a litigant was not malicious or in bad faith (Ground 6). Karen gave evidence that Andrew had made a statement to her suggesting that he was content for the estate to be eaten up in legal costs. But Andrew denied making the statement and he was not cross-examined on his denial. While Mr Ellison submitted that the manner in which Andrew conducted the litigation warranted an inference that he was motivated by malice, the Court was not taken to evidence of conduct of this kind.
For these reasons, I consider that the appellants have not demonstrated any error in his Honour's finding that Andrew's conduct in relation to the cheques and the subsequent litigation involved an error that vitiated his Honour's discretionary judgment.

Testamentary Intentions

Mr Ellison's challenge to the primary Judge's finding as to Mrs Johnson's testamentary intentions (Ground 4) appears to rest on the proposition that the only relevant expression of intention was in the Will. Section 60(2)(j) expressly states that the Court may take into account "any evidence of the testamentary intentions of the deceased person, including evidence of statements made by the deceased person" on the question of whether to make a family provision order and the nature of any such order. The statutory language permitted the primary Judge to take into account Mrs Johnson's expression of testamentary intention, even though not incorporated in a properly executed will.

Andrew's Needs

The primary Judge recognised that, by reason of s 60(1)(b) and (2)(d) of the Succession Act, Andrew's financial resources and financial needs were important considerations in determining whether a family provision order should be made in his favour and, if so, the nature of any such order. As has been seen, his Honour's determination that Andrew's indebtedness to the estate had to be taken into account in assessing his financial position at the date of the hearing did not involve an appellable error.
The appellants' challenge, in Ground 5 of the Notice of Appeal, to the primary Judge's assessment of Andrew's financial needs raises separate issues. His Honour found that Andrew's needs included "a modest two bedroom unit in Western Sydney (including transaction and moving costs)." [34] On the basis of evidence suggesting that the cost of such a unit was between $270,000 and $425,000, his Honour considered that Andrew's needs justified an allowance of $380,000 for the purchase of suitable accommodation.
The primary Judge was not necessarily obliged to assess Andrew's financial needs by considering the cost of acquiring suitable accommodation separately from Andrew's other needs. However, his Honour took that course. Accordingly, the finding as to Andrew's accommodation requirements played a significant part in his Honour's conclusion that the Will did not make adequate provision for Andrew's proper maintenance and advancement in life. The finding also played an important part in his Honour's conclusion that Andrew should receive further provision of $500,000 "in hand". [35]
The primary Judge pointed out, correctly, that Andrew's financial and personal circumstances were worse than those of his siblings. [36] His Honour considered that unless Andrew received further provision from the estate, he would have an amount sufficient to pay for only a basic studio or one bedroom unit in western Sydney and a second hand car, with little or no capital to act as a "buffer". [37] In making this assessment, his Honour appears to have assumed that, in the absence of a family provision order, Andrew would receive $256,000 as the balance of his entitlement under the Will. [38] On the primary Judge's calculations, if Andrew had not made a claim under the Succession Act, the balance of his entitlement under the Will would have been approximately $319,000 "in hand", from which he would have had to pay the estate the debt of $31,000. [39]
The appellants submitted to the primary Judge that a studio apartment outside Sydney was adequate for Andrew's needs, while Andrew argued for a two bedroom apartment in the Lindfield area. In allowing $380,000 for the purchase of accommodation the primary Judge took what he described as a "middle" course. [40] However, he acted on Andrew's concession in evidence that if a suitable one or two bedroom unit could be found in St Mary's, where a friend of his had a house, he could live in that vicinity.
The evidentiary basis for the finding that Andrew needed a two bedroom apartment, as distinct from a one bedroom apartment, is elusive. In his evidence in chief, Andrew said that immediately before the hearing he had carried out searches of property websites covering the Lindfield area. He said that a two bedroom unit in Lindfield, for sale at about $650,000, would be suitable for his requirements. He rejected as unsuitable a one-bedroom unit in the same area priced at $699,000 because he would "undoubtedly require a home office/study. It really has to be kept separate from the bedroom, from the living area".
The primary Judge found that Andrew's aspirations to undertake study and seek employment, although sincerely expressed, were unrealistic having regard to permanent psychiatric conditions and his work history. [41] Specifically his Honour considered that Andrew has "no real prospects of finding employment". [42] No doubt for this reason, his Honour did not attribute Andrew's need for a two bedroom apartment to any work or study requirements. Rather, he found that the need for an additional bedroom arose from Andrew's interest in West Papua and the desirability of having a "separate combined workspace and visitor bedroom if required". [43]
Mr Lawrence, who appeared for Andrew, was invited to identify the evidentiary basis for this finding, but he referred only to Andrew's evidence in chief. In that evidence, Andrew said nothing about requiring a second bedroom as guest accommodation. No other evidence was drawn to our attention suggesting that Andrew had any such need.
The primary Judge's reference to Andrew's interest in West Papua seems to be based on Andrew's affidavit evidence that he had used a guest room in his parents' home to pursue his interest in the decolonisation of West Papua. He did not explain why he required a separate room to pursue his interest, other than by an assertion that his "lobby and advocacy activities" were incompatible with a restriction of space. His vague evidence as to the nature of those activities does not demonstrate any incompatibility or that he could not carry on those activities in a conventionally designed one-bedroom unit.
Andrew's vagueness about the extent of his involvement in West Papua was evident in his cross-examination. When asked how much time per week he had spent in 2014 on the West Papua issue he said he did not know. When asked when he had last turned his mind to the issue, he said he had done so the previous week but did not explain what, if any, activity he had undertaken. He volunteered in his evidence that he was functional only for "a couple of hours in the day" and that in the past seven years he had devoted the bulk of his time "to try to find some sort of [legal] remedy", presumably for his own difficulties.
In my opinion, the evidence does not support the primary Judge's assessment that Andrew's "financial needs" at the date of the hearing included a need for sufficient funds to enable him to purchase a two bedroom unit. No doubt there will be cases where an applicant who has no family responsibilities and no prospects of paid employment requires more space than is provided by a one bedroom unit. But the evidence in this case did not establish that Andrew's circumstances created a need for anything other than a reasonably appointed one bedroom unit in the St Mary's area. Specifically, the evidence did not show that Andrew had existing or foreseeable family responsibilities or work or other commitments that created a need for a two bedroom unit.
I acknowledge that the assessment of an applicant's needs is not a mechanical process. In Andrew v Andrew, [44] Allsop P observed that "[a]ccepted and acceptable community values permeate or underpin many, if not most, of the individual factors in s 60(2)". That observation applies to the concept of "financial needs" embodied in s 60(2)(d) of the Succession Act. The needs of a person depend on a range of factors that will vary from case to case. Some of those factors, such as the person's age and earning capacity, are specifically mentioned in s 60(2). Other factors, such as the person's financial or non-financial responsibilities to family members, [45] or the standard of living which the deceased encouraged the person to enjoy, are not expressly identified in s 60(2) of the Succession Act.
Nonetheless, an assessment of needs, particularly where it is directed to such an important matter as the nature and cost of accommodation required by an applicant, must have a sound evidentiary foundation. In my view, the evidence in the present case does not support his Honour's finding that Andrew required a two bedroom unit. The evidence established that Andrew desired a two bedroom unit, not that he needed anything larger than a one bedroom unit. His Honour therefore made a material error of fact which vitiated both his determination that the Will did not make adequate provision for Andrew's maintenance or advancement in life and his decision to award Andrew $500,000 "in hand".

Re - Exercise of Discretionary Judgment

In view of this conclusion, it is necessary for this Court to exercise its own judgment on the two relevant questions. The first is whether the Court is satisfied that adequate provision for Andrew's maintenance or advancement in life has not been made by the Will. The second question, assuming the Court is so satisfied, is what order for provision should be made out of Mrs Johnson's estate for Andrew's maintenance or advancement in life, having regard to the facts known to the Court. [46] In undertaking these tasks, the Court may take into account the matters identified in s 60(2) of the Succession Act.
There are several difficulties confronting Andrew. The first is that no evidence was adduced on his behalf as to the cost of a one bedroom unit in the St Mary's area. The only evidence concerned the sale price of two bedroom units which, as the primary Judge recorded, were being offered at prices ranging from $270,000 to $425,000. The property information in evidence recorded that the median price of units in St Mary's at about the date of the trial was $260,000. This figure seems to have been the median price for all units, not only one bedroom units.
It is incumbent on a plaintiff to adduce evidence in support of his or her case. The evidence adduced on Andrew's behalf was not directed to the question that in my view is the critical one, namely the cost at the relevant time of a reasonably appointed one bedroom unit in St Mary's. The price of two bedroom units does not provide a reliable guide to the cost of one bedroom units. In the incomplete state of the evidence, I am not prepared to infer that the cost of acquiring a one bedroom unit in the St Mary's area, including transaction and relocation costs, was any more than $200,000.
A second difficulty is that I would not take the same view as the primary Judge of Andrew's conduct in taking money from his mother. That conduct necessitated expensive litigation to recover the moneys. The effect of the litigation was not merely to dissipate Andrew's assets, but to reduce the size of the estate (because of irrecoverable costs). Like the primary Judge, I accept that Andrew's conduct should not be characterised as dishonest or immoral. I also accept that a finding should not be made that he unnecessarily prolonged the case by the way in which he conducted his defence. Nonetheless, he was found by the Court to have taken financial advantage of Mrs Johnson and to have used some of the money taken from her for his own purposes. I think that this conduct should be taken into account in answering the question posed by s 60(1) of the Succession Act, not as an expression of disapproval of his conduct, but because he engaged in deliberate conduct that ultimately resulted in a significant diminution of the value of the estate.
A third difficulty confronting Andrew is that I would regard the figure of $90,000 awarded by the primary Judge as a "buffer" to be somewhat generous. I accept that adequate provision for Andrew's proper maintenance and advancement in life requires him to have some funds as a "buffer" against the vicissitudes of life, having regard to his psychiatric disabilities and his inability to obtain employment. Recognising that a figure involves an exercise of judgment, I would select a more modest figure in the range of $50,000 to $70,000 as an appropriate normal "buffer".
Subject to my observation concerning Andrew's conduct in taking money from Mrs Johnson, I would assess his needs by reference to his financial position at the trial. I would not "discount" those needs because of his conduct in pursuing litigation against family members or because (as Mr Ellison suggested) he is said to have prolonged the money case.
It is appropriate to take into account in Andrew's favour that, as the primary Judge found, the estate, despite the impact of irrecoverable legal costs, is relatively large and Andrew's financial and personal circumstances are very much worse than those of his siblings. It can be accepted, as Hallen J said in Camernik v Reholc, that in general the community does not expect a parent to look after an adult child for the rest of his or her life. But as Hallen J also said, if the adult child has been dependent on his or her parents and has fallen into hard times through illness (whether physical or psychiatric), community expectations are likely to extend to ensuring that the provision is sufficient to meet the applicant's basic requirements to avoid destitution.
I agree with the primary Judge's view that the adequacy of the provision made in the Will should be assessed by reference to whether the provision is sufficient to enable Andrew to meet his needs, but not on an overly generous basis. I respectfully differ from his Honour essentially because I consider that the evidence establishes that Andrew's reasonable accommodation needs can be met by a more modest outlay.
It follows from what I have said that Andrew's needs, assessed at the date of the trial, required provision for:

Appropriate accommodation, at a cost of about $200,000;
medical expenses and a vehicle (assessed by the primary Judge to cost about $30,000); and
a buffer of about $50,000 to $70,000. This suggests that his needs, assessed on a relatively modest basis, could be met by a provision in the order of $280,000 to $300,000.

Had Andrew not brought proceedings under the Succession Act, he would have received about $319,000 from the estate, but would have had to repay his interest debt of $31,000. Thus he would have received about $288,000 "in hand". This is very close to the amount that I consider would have constituted adequate provision for Andrew's proper maintenance and advancement in life. On this basis, I am not satisfied that the Will did not make adequate provision for Andrew's proper maintenance and advancement in life. I reach this conclusion independently of his conduct in taking money from Mrs Johnson, but that conduct reinforces my view.

Orders

For these reasons, I consider that the appeal should be allowed and the orders made by the primary Judge should be set aside. In lieu of those orders, Andrew's summons should be dismissed.
In the unusual circumstances of the present case, I would not disturb the costs order made by the primary Judge. If Andrew has to pay the appellant's costs of the proceedings at first instance he will in all likelihood be prevented from securing his own accommodation. However, he should pay the appellant's costs of the appeal.
I propose the following orders:
Appeal allowed
Set aside Orders 1 and 1A made by Kunc J on 9 December 2014.
In lieu of Orders 1 and 1A, order that the Plaintiff's summons be dismissed.
The respondent pay the appellant's costs of the appeal.

Endnotes

Johnson v Smith [2014] NSWSC 1682 (Primary Judgment).
Succession Act, s 57(1).
Succession Act, s 57(1)(c), (e).
See at [37]-[38] below.
Primary Judgment at [27].
Primary Judgment at [28].
Primary Judgment at [36]-[38].
Smith v Johnson [2008] NSWSC 923 (Young CJ in Eq).
Johnson v NSW Guardianship Tribunal [2009] NSWSC 664.
Johnson by her tutor Karen Smith v Johnson [2009] NSWSC 503.
Johnson by her tutor Karen Smith v Johnson at [95]-[97].
Johnson v Smith [2010] NSWCA 306.
Johnson v Smith [2011] HCASL 53.
Johnson v Smith [2010] NSWSC 125 at [38].
Re Will of Jane [2011] NSWSC 624; Re Will of Jane (No 2) [2011] NSWSC 883 (Hallen AsJ).
Primary Judgment at [23].
Primary Judgment at [24].
Primary Judgment at [24].
Primary Judgment at [63].
Primary Judgment at [65]-[74].
Primary Judgment at [76].
Primary Judgment at [83], [84], [90].
Succession Act, s 60(2)(h).
Succession Act, s 60(2)(i).
Succession Act, s 60(2)(j).
Primary Judgment at [95]-[97].
Primary Judgment at [99].
Primary Judgment at [105].
Primary Judgment at [75].
See Burke v Burke [2015] NSWCA 195 at [17]-[22] (Ward JA, Meagher and Emmett JJA agreeing); Bates v Cook [2015] NSWCA 278 at [58] (Sackville AJA, Meagher and Leeming JJA agreeing); Underwood v Gaudron [2015] NSWCA 269 at [67] (Basten JA, Ward JA agreeing).
Burke v Burke [2015] NSWCA 195 at [40] (Ward JA, Meagher and Emmett JJA agreeing); Mulcahy v Weldon [2002] NSWCA 206 at [24] (Hodgson JA, Handley and Campbell JJA agreeing).
[2012] NSWSC 1537.
A very similar statement of the principles by Hallen AsJ (as he then was) in Bowditch v NSW Trustee and Guardian [2012] NSWSC 275 at [111], was cited with approval in Chapple v Wilcox [2014] NSWCA 392; 87 NSWLR 646 at [21] (Basten JA); see also at [65]-[67] (Barrett JA).
Primary Judgment at [97].
Primary Judgment at [106].
Primary Judgment at [72].
Primary Judgment at [73].
That is, one third of $768,000: Primary Judgment at [3]; see at [17] above. Out of this amount, Andrew would have had to pay $31,000 to the estate. He would also have to meet the balance of his own solicitor and client costs.
That is, one third of $956,000. Had no claim been made, no costs would have been incurred.
Primary Judgment at [96].
Primary Judgment at [37].
Primary Judgment at [5].
Primary Judgment at [96].
[2012] NSWCA 308; 81 NSWLR 656 at [12].
Section 60(2)(e) mentions the financial circumstances of a person with whom the applicant cohabits as a relevant consideration.
Succession Act, s 59(1), (2). Andrew's education is not a material consideration in the present case. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 30 September 2015

Family Provision Act 1982(NSW)

At a glance

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Judgment (25 paragraphs)

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Legislation Cited (2)

Cases Cited (17)