HARVEY v KECHAGIAS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MEAGHER, HANDLEY and BEAZLEY JJA 10 July 1997, 3 October 1997 [1997] NSWCA 138 FAMILY PROVISION ACT — provision for adult daughter — quantum — need for accommodation — discretion — estate inadequate — entitlement and quantum to be considered at date of order The appellant claimed against the estate of her late father under the Family Provision Act. The only substantial asset of the estate was the house of the deceased valued at $210,000 but the net estate, because of expenses, was worth only $155,000. The will provided for half the estate to pass to the children of the appellant and the other half to the children of the respondent, her brother. The Master awarded one third of the estate to the appellant, leaving one third for her children and one third for the children of the respondent. The daughter challenged the award as too low, and outside the range of the Master's discretion. HELD: Dismissing the appeal by Meagher and Handley JJA, Beazley JA dissenting: (1) Per Meagher and Handley JJA: No error had been shown in the Master's exercise of discretion. All the beneficiaries had physical, mental or psychological difficulties. (2) Per Meagher JA: Although the appellant cared for the deceased for a period between 1980 and his return to Greece in 1987, she benefited by living in the house of the deceased rent free for many years. (3) Per Handley JA: An order should not be made for the appellant to receive the whole estate as this would not enable her to retain the deceased's house or buy another. The appellant's income from Social Security did not enable her to borrow monies on mortgage to pay off the estate liabilities. (4) Per Handley JA: The Court should not encourage appeals in cases where the resources of the estate cannot accommodate all the claims against it, and where the only challenge to the award is one of quantum. Accordingly the appellant should not receive her costs of the appeal. (5) Per Beazley JA (dissenting): The appellant was a natural object of testamentary recognition by the deceased, and the award of the Master was inadequate having regard to her needs. Meagher JA I have read the judgment of Beazley JA. I do not agree with it. I would dismiss the appeal with costs. The facts are set out in her Honour's judgment. The difficulties presented by this case are mainly twofold: the minute size of the deceased's estate and the absences of a good deal of necessary evidence. As to the former, the assets of the estate consist almost entirely of one house at the Sydney suburb of Enfield. It has a gross value of $210,000. It has to bear estimated selling expenses ($7,000), other liabilities including the costs at first instance ($25,000) and the costs of the appeal (say, another $25,000). The house is also in need of extensive repairs. In the end, therefore, one has six persons (the appellant and five children) trying to get slices of $150,000 adequate for their needs. It is an impossible task. As to the latter, one does not know the prices of other houses in or near Enfield (although, I think, one may safely assume one could not buy much of a house for $150,000); one does not know the details of the Housing Commission offers; one does not know the cost of the necessary repairs; one does not know what 2 UNREPORTED JUDGMENTS apartments in the area can be leased, nor at what rental; one does not know what employment is open to the appellant (who has, apparently, decided to pursue some degree course at University; a somewhat self-indulgent decision, one would have thought, in the circumstances); and one does not know how she could discharge all the estate liabilities if she had to. Nor does one know the effect any Court order will have on her already considerable income. Bearing in mind the onus which she has, one cannot, in my opinion, make every presumption in her favour, in the manner which Beazley JA does. It is agreed that she should have some share of the estate, but when considering the quantum of that share one must consider the plight of the deceased's five grandchildren, three of hers and two of her brother's. All of them have marked deficiencies, mental, physical or psychological. Her daughter Despina has "some areas" of frustration, and needs occupational therapy and psychological assistance. Her daughter Demitra cannot write, her son Marcus has slow "auditory conceptualisation skills". All three of them need remedial teaching. Her brother's son Damien has "problems with his knees". What these "problems" are we do not know, but they are sufficiently grave to have required two operations for patella realignments, and perhaps there are more to come. He needs physiotherapy. His brother Jason is under the care of a child psychologist; he cannot "interact" socially, his future opportunities are limited; he suffers from "crowd deafness" which necessitates the wearing of a special microphone and ear-plug. He has little muscle tone, does not play sport, and lacks co-ordination. He now has to see a sports physiotherapist. It is hardly a wonder that these children's grandfather thought they were worthy of his testamentary beneficence. Nor, in assuming the quantum of the appellant's claim, can one disregard the fact that for some decades the deceased provided her with rent-free accommodation. Certainly, this entailed her providing basic domestic duties for her father, but that does not detract from the enormous benefit she received. In all these circumstances, I cannot see how the Master was wrong in exercising his discretion the way he did; after all, it was impossible to give her everything she wanted, and in effect (effecting her share and her children's share) he gave her two-thirds of the estate. The appeal should be dismissed with costs. Handley JA In this matter I have had the benefit of reading the judgments of Meagher and Beazley JJA in draft form and I need not repeat all the facts they have referred to. This is a difficult case as these judgments demonstrate. The appellant, who was the only daughter of the deceased, her late father, received practically nothing under his 1988 will. She has been married twice, and at all relevant times has been living in the deceased's home at 27 Dean Street, Enfield. Her first marriage in 1981 broke down in 1983, and her second marriage in 1986 ended in separation in 1989 and divorce in 1992. She has lived in the house since 1980 except for a brief period between February and June 1984 when she and her husband lived in rented accommodation. She has lived in the house with both husbands and is still living there with her three children. She gave up work in 1980 to look after her mother during her last illness and has not had paid employment since. Her father remarried in Greece in 1984 and returned to Australia with his second wife. The appellant continued to look after her father in many ways, although by this time the house had been divided into URJ HARVEY v KECHAGIAS (Handley JA) 3 two flats. Her father and stepmother were in Greece between February or March 1986 and December 1987, they returned to Greece in 1990, and her father died there the following year. After her father left for Greece in October 1990, the appellant was involved in a catering business for a time, but this proved unsuccessful. At the date of trial she was living on Social Security and undertaking a Bachelor of Arts Course at Sydney University with a view to returning to the workforce. The appellant has no significant assets, was dependent on Social Security, and was living with her three children in the house at Enfield, which was the only significant asset in the estate. The terms of her father's will required the house to be sold and she and her children would then be dependent on public housing. The appellant's children may have been eligible persons for the purposes of the Family Provision Act, being grandchildren who were wholly or party dependent upon the deceased because they lived in accommodation that he owned. On the other hand, there is no reason for thinking that her brother's children, who were the other beneficiaries under the will, were so eligible. At the date of her father's death the appellant, in my view, had an overwhelming claim on her father's estate, based on her need for accommodation for herself and her children, and the many years she had stayed at home to look after her parents. The Master found that she was entitled to an order under the Act, and this finding was not challenged. The Court, however, is required by s7 of the Family Provision Act to consider the situation at the time it is called on to exercise its powers, and not at the date of death. The Master found in his supplementary judgment of 4 November that the house was then worth $210,000 and the residuary estate some $155,000. The difference of $55,000 represented the costs of the proceedings, the costs of selling the house, and other estate liabilities and expenses. At the date of trial the appellant had an income from Social Security of $491 a week and expenses of $545 a week which did not include any amount for rent. She could not afford to service a housing loan and could not even pay rent. After the Master published his first judgment on 7 August 1996, in which he awarded the appellant one third of the estate, he adjourned the proceedings to enable the parties to make submissions about the form of the orders. In due course the appellant submitted a proposal to buy the family home with the help of Ms McKay, a friend who had organised a housing loan for $90,000 which she could contribute to the purchase. The appellant hoped that this would be sufficient to buy out the interests of her brother's children and pay the estate expenses. The Master found that this would require $89,595.77 without providing for the legal expenses of the purchase and mortgage. He made final orders reserving liberty to apply to implement the proposal but this was not followed up. The Court was not told why, but it is a reasonable inference that the proposal had become impracticable. The appellant appealed instead. The parties have incurred further legal costs in this appeal. The Court is not in a position to assess the amount with any accuracy, but the costs of both sides may well be $20,000, so that if the appeal were to be allowed and the costs of both sides ordered to be paid out of the estate, this would be reduced to a net figure of $135,000 or less. It follows that even if the Court were to award the appellant the whole estate, she will not be able to purchase accommodation in Sydney for herself and her children. There is no evidence that Ms McKay is still willing to join the appellant in purchasing the house, and borrowing $90,000 on mortgage. If the appellant 4 UNREPORTED JUDGMENTS were to be awarded the whole estate, $90,000 would be enough to pay off the estate liabilities and the costs of the purchase and mortgage and leave something over for necessary repairs. Unfortunately, all this is speculation because the Court does not know whether Ms McKay, or anyone else, would be prepared to enter into such a transaction with the appellant. It is however clear that an order that the appellant receive the whole estate would not enable her to purchase accommodation on her own for herself and her children in or near Sydney. She has no capacity to borrow, and at the date of trial her income from Social Security did not cover her expenditure. She had no capacity to pay the costs such as rates, insurance and repairs she would incur as a property owner. The appellant had been offered accommodation by the Housing Commission on three occasions prior to the trial, and had rejected all of these offers. The Court does not know whether she can still receive further offers, but I would not infer, without evidence, that she was now disqualified. In the absence of some scheme for joint purchase the appellant would be forced into public housing in any event: On her present income and expenditure she would have difficulty paying Housing Commission rents. In my view these conclusions are fatal to this appeal. The appellant is in urgent need of cash resources, but not to the extent of $135,000. The Master's order made reasonable provision for the appellant's need for cash resources. Her need for housing, unfortunately, will have to be met from scarce public resources. The Master's order would enable the appellant to live with some dignity in public housing, and the income of her children's shares should also be paid to her during their minority. Any further cash resources would reduce her Social Security entitlements, and might prejudice her request for public housing. While the appellant has the prior claim, her children and the respondent's children are also in great need, as Meagher JA demonstrates. Moreover, the Master's second judgment of 4 November reveals that the respondent, her brother, had lost his job since the trial and was in some financial difficulty. It was not suggested that the Master's first judgment disclosed any error of principle or mistake of fact, and there was no appeal from his second judgment. The appeal can only succeed if we can find that the quantum of the order lay outside the range of a sound exercise of the Master's discretion. The Master's finding that the house would have to be sold was crucial, and this finding was inescapable unless the appellant could come up with a workable proposal involving another party. Once it became clear that the estate was not large enough to satisfy the appellant's need for secure housing, the issue became the size of the order which was reasonably appropriate for a claimant who would be dependent on public housing for accommodation and Social Security for income. I have not been persuaded that the Master fell into any error in carrying out this task. I have anxiously considered whether I should nevertheless propose an order that the appellant either receive her costs of the appeal out of the estate, or that there be no order as to her costs, but have concluded that neither order would be appropriate. The appeal involved a bare challenge to the exercise of the Master's discretion in a case where the estate was not large enough to satisfy the claims against it. This Court should not encourage appeals in such cases. Either order would send the wrong signal to dissatisfied parties and further diminish net estates which reach the hands of the beneficiaries. This is a hard case, but either order would, in my view, be bad law. URJ HARVEY v KECHAGIAS (Beazley JA) 5 The appellant has occupied the Enfield house since the death of her father in 1991 without paying any rent or occupation fee. The case has been conducted on the basis that the estate did not include any such claim, and the Master's order should be understood on this basis. In my view, the appeal should be dismissed with costs. Beazley JA The appellant appeals against the order for provision made for her by Master Macready under the Family Provisions Act 1982. The factual and legal issues on the appeal are within short compass and essentially are not in dispute. The deceased died on 12 October 1991, aged 68 years. He was survived by his widow who resides in Greece; his daughter, the appellant, who was aged 42 as at the date of death; and his son, the respondent, aged 41 as at the date of death. By his last will and testament, dated 27 July 1988, the deceased appointed the respondent as executor and directed that his real estate be divided into two half shares, one half share being devised to the appellant's three children and the other half share being devised to the respondent's two children. The deceased bequeathed his personal effects to the respondent subject to a direction that the appellant receive ten percent of the value of the personal effects. The principal asset in the estate was the family home situated at 27 Dean Street Enfield. As at the date of hearing, the value of that property, after deduction of estimated selling expenses, was approximately $203,000, based upon an estimated gross value of $210,000. There was also property in Greece of minimal value but which, in any event, was not subject to the jurisdiction of the Court. The estimated liabilities of the estate, including costs of the hearing at first instance were approximately $25,000. The respondent conceded that the appellant was entitled to further provision out of the deceased's estate, but submitted that the Master's order that she receive one third thereof was a proper exercise of the Master's discretion. The appellant had left school in 1966 and over the next ten years worked in a number of clerical positions. In 1977 her parents were injured in a motor vehicle accident and she ceased work so as to care for them. The appellant visited Greece for twelve months between July 1978 and 1979. When she returned to Australia she worked part time for a few months and then, in November 1979, ceased work and cared for her mother until March 1981 when her mother died. During this time she also cared for the deceased. She continued to care for the deceased after her mother's death, except for the short period in 1984 when she lived away from the family home, and during three separate periods when the deceased was in Greece. However, during those periods, she attended to certain business of the deceased. Although the deceased remarried in 1984, the appellant continued to assist him by supervising his diet and regularly accompanying him to a diabetes clinic after he had been diagnosed with diabetes in 1984. The appellant first married in 1981 and separated two years later. She married a second time in 1986 but separated three years later. She had one child from the first marriage and two from the second. The children were aged 14, 10 and 8 at the date of judgment. The appellant continued to live at home during her marriages except for a three month period in 1984. She has continued to live in the Dean Street property since the date of death of the deceased. During her father's lifetime, the appellant twice rejected an offer of Housing Commission accommodation, due to pressure exerted by the deceased that she remain living in the family home. The appellant had, as at the date of trial, an outstanding offer of Housing Commission accommodation. 6 UNREPORTED JUDGMENTS The appellant has no assets, apart from some furniture and household effects valued at about $5,000. She has debts of approximately $4,000. As at the date of hearing her income was $491.00 per week made up of pensions, family allowance, child maintenance and an Austudy supplement. This income does not cover her expenses. She is presently studying part time and the Master found that it would be about a further 2 1/2 years before the appellant returned to the workforce. The appellant's three children all live with their mother. The children experience learning and behavioural difficulties. The respondent owns, with his wife, a home at Rochedale near Brisbane. The property is unencumbered. They also own a car and household effects of an unknown value. Until 1989, the respondent was employed by Westpac Banking Corporation as an accountant. He then became self employed, conducting a fishing tackle business through a family company. That business was sold in late 1995. The respondent and his wife are still owed money by the family company under which the fishing tackle business was carried on. The respondent was unemployed for a period after the sale of the business. Shortly prior to the hearing he had obtained a job as a manager of a fishing tackle manufacturing company and expected to earn a salary of about $25,000 per annum. He had also expressed a desire to commence another business. The respondent and his wife have two children, Damien and Jason, who were 16 and 14 years of age respectively at the date of judgment. Both attend a State high school. Damien suffers from some minor physical problems. Jason also suffers physical difficulties and in addition to this has been diagnosed as having Attention Deficit Disorder. It is anticipated that Jason will have problems in the future obtaining employment. The appellant's case at trial was that she had need for accommodation for which the deceased should have made provision. The Master rejected this claim. In doing so he referred, first, to the absence of evidence that the appellant was in any position to meet the expenses of the estate and secondly, to the fact that the house required repairs. He found, that in the circumstances, "it would seem inevitable that the house would have to be sold". In the absence of evidence of the cost of purchasing alternate accommodation, suitable to the appellant's needs to house herself and her three children and taking into account those factors, and the needs of the beneficiaries, the Master concluded that as the need for accommodation could not be satisfied out of the estate, the appellant should receive one third of the estate, her children one third and the children of the respondent the remaining one third. The Master ordered that the appellant's costs on a party party basis ant the respondent's costs on an indemnity basis should be paid or retained out of the estate. The Master did not, at the time of his judgment make final orders, indicating that he would hear further submissions on the form of orders. Subsequently, a proposal was put before the Master whereby the appellant and a friend would borrow a sum of $90,000 so as to "buy out" the one third interest of the respondent's children in the estate. There was apparently, at that time, a loan approval in place in respect of the $90,000. The Master rejected this proposal for the reasons contained in his judgment dated 4 November 1996, ant which are not relevant here. The case put on behalf of the appellant on the appeal was again based on the appellant's need for accommodation. It was submitted that her case was a strong one because the property had been her home for something like 27 years (except URJ HARVEY v KECHAGIAS (Beazley JA) 7 for the short absences to which I have referred); her children were dependant on her for accommodation; her financial position was precarious; she had made financial contribution to the property, and she had cared for her parents. The respondent properly conceded the appellant's entitlement to an order. He also conceded that, but for one consideration, the provision to which the appellant was entitled was the family home. The consideration which made that provision inappropriate was the appellant's apparent inability to pay out the estate liabilities, including the costs of the action, or alternatively to service any loan she might obtain to pay out those liabilities. It was submitted, therefore, that the Master had not erred in the exercise of his discretion in awarding to the appellant one third of the estate: see House v The King (1936) 55 CLR 500. I do not agree. The appellant was "a natural object of testamentary recognition" by the deceased: see Re Fulop deceased (1987) 8 NSWLR 679 at 681. The respondent has conceded that appropriate provision would have been an order that the appellant be devised the family home, but for the Master's finding that it was probable that the home would have to be sold. The Master's consideration of the appropriate order which should be made was hampered by a lack of evidence of the cost of alternative accommodation. It should be said that the case, generally, was affected by the absence of relevant evidence, such as the effect on the appellant's pension entitlements of any orders made by way of a legacy to her or her children. This Court was not further assisted in this regard, except to the extent of the matters recorded in the Master's judgment of 4 November 1996, and for agreed information which was provided to the Court at its direction, in respect of the affect of the payment of a legacy on the appellant's pension entitlements. Although the financial proposal referred to in the judgment of 4 November 1996 was directed to a means of satisfying orders proposed by the Master in his earlier judgment, whilst enabling the appellant to retain the home, or at least part ownership of it, it is open to this Court to consider the material referred to in it in determining whether an order should be made that the deceased's real property be devised to the appellant. As to the effect of a legacy on the appellant's sole parent's pension, the Court has been informed that a legacy of $50,000.00 would have no effect on the pension, a legacy of $100,000.00 would cause a reduction of $53.85 per fortnight and a legacy of $150,000.00 a reduction of $111.50 per fortnight. There would be no effect on her other pensions. The legacy of $50,000.00 awarded by the Master is, in my opinion, totally inadequate, having regard to the appellant's needs. Nor is an increase in the legacy awarded the appropriate provision which should have been made and which now ought to be made by this Court. The fact that an increase in the amount of a legacy would, depending upon the amount, effect a reduction in pension merely underscores the point that provision in the form of a legacy, in any amount, is inadequate. As I have said, and it is obvious, the appellant has a need for accommodation and that need is one which should have been recognised and provided for by the deceased. Had the deceased adequately recognised this need, the appellant would have had to procure a means of satisfying the estate's liabilities. Those liabilities have, regrettably, been increased by the costs of the litigation. However, the need for litigation to obtain appropriate provision, with its attendant costs, should not have the consequence of depriving the appellant of the very provision which should have been made by the deceased. It will be for 8 UNREPORTED JUDGMENTS the appellant to determine how she will satisfy the estate's liabilities. She has already demonstrated, in her post trial application to the Master, that she has an ability to do so. I should add that even had there been no material available to the Court as to any financial proposal to purchase the property or none of which it could take account, it would still have been proper for the Court to make the order which I propose, again leaving it to the appellant to find the means to satisfy the estate's debts. It is appropriate, however, that the Court limit the time in which she attends to payment of those liabilities. I propose therefore that: 1. In lieu of the provisions of cl2(b) of the Will of the deceased there be a devise to Elena Harvey of all that real estate situated at and known as 27 Dean Street Enfield, subject to payment by the said Elena Harvey of the debt of the estate within a period of six months from the date of this order. 2. The respondent's costs of the appeal to be paid out of the estate on a trustee basis. Appeal dismissed with costs. Counsel for the appellant: J Wilson Solicitors for the appellant: Maurice May & Co Counsel for the respondent: M Walton Solicitors for the respondent: Nicholas G Pappas & Co