New South Wales Court of Appeal CITATION : Jvancich v Kennedy [2004] NSWCA 293 HEARING DATE(S) : 9 June 2004 JUDGMENT DATE : 27 August 2004 JUDGMENT OF : Handley JA at 1; Giles JA at 50; McColl JA at 51 DECISION : 1. Appeal allowed in part.; 2. Orders 3, 4, and 5 of the Master set aside.; 3. In lieu thereof order that the appellant pay the respondent the sum of $60,000 together with interest at the rate prescribed pursuant to s 84A(1) of the Wills Probate and Administration Act 1898 from 26 August 2003 until payment.; 4. Orders 1 and 2 confirmed.; 5. Costs of the proceedings before the Master and in this Court reserved for further argument on written submissions to be lodged by the parties. The appellant's further submissions are to be lodged within seven days, the respondent's within a further seven days, and any written submissions in reply within a further seven days after that. CATCHWORDS : FAMILY PROVISION - claim by adult daughter of first marriage - assets of deceased and surviving widow held jointly - widow making substantial contribution from gambling win - deceased formerly had substantial property in own right - provision to enable daughter to purchase house not justified LEGISLATION CITED : Family Provision Act 1982 CASES CITED : Warr v Santos [1973] 1 NSWLR 432 PARTIES : Augustina Jvancich (Appellant) Kimm Kennedy (Respondent) FILE NUMBER(S) : CA 40666/03 COUNSEL : R D Wilson (Appellant) A C Smith (Respondent) SOLICITORS : Stacks The Law Firm (Appellant) Kelly & Agerholm (Respondent) LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT SC 4910/00 FILE NUMBER(S) : LOWER COURT Master McLaughlin JUDICIAL OFFICER : THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40666/03 HANDLEY JA GILES JA McCOLL JA 27 AUGUST 2004 AUGUSTINA JVANCICH v KIMM KENNEDY CATCHWORDS FAMILY PROVISION – claim by adult daughter of first marriage – assets of deceased and surviving widow held jointly – widow making substantial contribution from gambling win – deceased formerly had substantial property in own right – provision to enable daughter to purchase house not justified FACTS A daughter by the first of three marriages of the deceased brought proceedings under the Family Provision Act 1982. All the assets of the deceased and his third wife were held jointly and passed by survivoship to the widow on his death in June 1999. The widow had won $1,756,172 playing Club Keno in February 1995 when the deceased had assets worth $500,000. The Master found that the widow had failed to account for assets in excess of $250,000. The daughter had been poorly educated and had major health problems which affected her ability to support herself. She also had minimal assets. The Master made an order in her favour out of designated notional estate for $250,000 to enable her to buy a house in a country town and have a fund for contingencies. On appeal by the widow HELD: (1) The Master had erred in finding that the widow had failed to account for assets in excess of $250,000; (2) The Court had to intervene and re-exercise the discretion; (3) An order in favour of the daughter which would enable her to buy a house could not be justified; (4) The daughter was entitled to an order for $60,000. ORDERS 1. Appeal allowed in part. 2. Orders 3, 4, and 5 of the Master set aside. 3. In lieu thereof order that the appellant pay the respondent the sum of $60,000 together with interest at the rate prescribed pursuant to s 84A(1) of the Wills Probate and Administration Act 1898 from 26 August 2003 until payment. 4. Orders 1 and 2 confirmed. 5. Costs of the proceedings before the Master and in this Court reserved for further argument on written submissions to be lodged by the parties. The appellant's further submissions are to be lodged within seven days, the respondent's within a further seven days, and any written submissions in reply within a further seven days after that. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40666/03 HANDLEY JA GILES JA McCOLL JA 27 AUGUST 2004 AUGUSTINA JVANCICH v KIMM KENNEDY Judgment 1 HANDLEY JA: This is an appeal by the widow of the late Kevin Jvancich (the deceased) from orders made by Master McLaughlin under the Family Provision Act 1982 in favour of a daughter by his first marriage. The deceased died on 7 June 1999 aged 68 survived by the appellant, his third wife, to whom he had been happily married for over 22 years. At the time of his death the assets of the spouses were held jointly so that the widow acquired all the property of the deceased by survivorship. He left no free estate and his will was not admitted to probate. 2 The deceased was also survived by his first two wives, another daughter by his first wife, and two children by his second. All were eligible persons under the Family Provision Act but the only claims were those by the respondent, and her sister. The claim of the latter was compromised before trial by a payment of $50,000 plus costs. 3 The Master made an order that the respondent receive a legacy of $250,000 and her costs out of the assets of the widow in which the deceased had an interest in his lifetime as joint tenant which were designated as notional estate. 4 The respondent was 48 at the date of trial. Her parents were divorced when she was six and she had no contact with her father until she was about 19. From then on there was intermittent contact until shortly before his death. She left school at the age of 15 with poor literary skills as a result of disruptions caused by illness, many changes of school, and her role as baby sitter to her sister and half-sister. The respondent was already suffering problems with her back because of her scoliosis and had to wear a back brace. This condition in her cervical and thoraco-lumbar spine had developed into a significant disability by the time of the trial. She also suffers from asthma. 5 The respondent has been married three times but was a single woman at the date of trial. She had three children by her second marriage who were no longer dependent on her. Despite her disabilities she made every effort to support herself. At the time of trial this involved her working as a relief driver on a tractor in the country around Longreach in Queensland clearing dams, working up to four hours a day. At the date of trial her assets were minimal comprising a motorbike, a car, and about $6,000 in her bank account. 6 When the deceased died the assets owned jointly with his wife comprised: House property at Palmway Crescent, Tuncurry purchased about 1996 for $210,000 House property at 32 Regency Circuit, Tuncurry purchased about 1997 for $165,000 subject to a mortgage of $80,000 Unit at 4/56 Wharf Street, Tuncurry purchased about 1997 for $78,000 House at 9 Palmway Crescent, Tuncurry purchased about 1995 for $395,000 Jaguar XJR motor car 1954 TF MG sports car purchased in 1998 for $21,000 18 foot runabout boat with outboard motor fixed term annuity policy providing an income of $1900 a month joint account with St George Bank with a credit balance of $45,000 7 Although the estate had no assets the widow paid the legacies totalling $15,000 provided for in the deceased's will including a legacy of $5,000 to the respondent. The widow gave the TF MG sports car to Vincent Muriti, a son of the deceased by his second marriage, after having restoration work on the vehicle completed at a cost of $46,570. 8 The deceased acquired substantial assets from his father. In 1990 his father purchased a house for him in Lakemba which the deceased sold in 1995 for $227,000. His father died in 1994 and under the terms of his will the deceased received one-half of the residue which realised $282,743. In February 1995 the appellant won $1,756,172 playing Club Keno at the Lakemba Services Memorial Club. There is no evidence that the deceased had any legal or equitable interest in this prize money. 9 Later in 1995 after he had sold his house the deceased and the appellant moved to Tuncurry on the North Coast. Between then and his death he purchased and sold a number of expensive motor vehicles and boats, one of the latter being purchased for $352,500 in 1995 and sold the following year for $280,000. The Master found that at least some of the items jointly owned at the time of his death were purchased with the proceeds of the deceased's inheritance from his late father and the proceeds of the sale of the Lakemba house. 10 At the date of trial the appellant owned the following assets: House at Palmway Crescent, Tuncurry said to be worth $750,000 Investment property at 32 Regency Circuit, Tuncurry said to be worth $300,000 House property in the Philippines said to be worth $50,000 Honda Civic 2000 motor car Furniture and personal effects ANZ term deposit of $30,527 St George Bank cheque account $7053 ANZ savings account $700 11 The appellant then had the following liabilities: Mortgage to CitiBank over 32 Regency Circuit, Tuncurry $20,089 CitiBank revolving credit $17,804 ANZ Visa Card $5,000 12 In the interval she had sold the properties at 4/56 Wharf Street and 8 Palmway Crescent for $400,000. 13 The Master said that it was not at all clear how this amount and the proceeds of the sale of the Jaguar had been spent or what had happened to the fixed term annuity policy. However he noted that the mortgage over 32 Regency Circuit had been reduced by $55,000. The credit in the St George cheque account had been reduced from $45,000 to $7000 but the widow had an ANZ term deposit of $30,527. He continued: "It is difficult to resist the conclusion, as submitted on behalf of the plaintiff, that even upon the most generous approach, the defendant has not accounted for assets in excess of $250,000." 14 The defendant said that her only income at the date of the trial was from the rent of 32 Regency Circuit. Her tax returns for the years ended 30 June 2001 and 2002 were in evidence and the trial took place before the end of the 2003 fiscal year. She estimated that her regular outgoings were in excess of $500 a week. During the four years since the death of the deceased she had visited her family in the Philippines on five occasions and had been for a three week trip to Europe in 2000 and for a three to four week trip to Europe in 2001. 15 The Master said that it was difficult to reconcile the evidence of the widow's expenses and lifestyle with the income disclosed in her tax returns. 16 In 1996 the appellant underwent surgery for breast cancer and since that time she has been on "medication" and has had regular check ups from a surgeon. She also suffers from arthritis in her hands for which she has treatment from a rheumatologist and she has a kidney problem for which she has regular check ups from a renal specialist in Port Macquarie. 17 In March 2003 shortly before the trial she underwent keyhole surgery to remove a tumour from her left lung and had been on chemo-therapy. She was to have further treatment from her oncologist after the trial. 18 The plaintiff's needs based on her poor health, lack of proper education, lack of secure accommodation, and lack of assets were substantial. The Master had no difficulty in finding that she had been left without adequate provision for her proper maintenance. 19 On the other hand he also found that the defendant had been a loving and dutiful wife to the deceased for more than 22 years and in normal circumstances she would have been entitled to rely upon his assets for her maintenance after his death. However the unexpected gambling win of $1,756,172 had completely altered the situation. Her own assets were now considerably greater than his. 20 The Master said that it was not usual for an adult child to establish an entitlement, under the Act, to receive the purchase price of a residence from the estate of a deceased parent. However the plaintiff's situation of disadvantage flowed in part from the deceased's failure to provide her with the usual advantages a child receives from parents. Her great need was for secure accommodation and he held that she had established an entitlement to receive $200,000 to purchase a standard residence in the Longreach district and a fund to meet contingencies. He therefore considered that the plaintiff should receive $250,000. 21 The Master found that the jointly owned assets reflected the widow's gambling win and the benefits the deceased received from his father. He then found: "The assets of the defendant, who is the only other person who has a competing claim upon the testamentary bounty of the deceased are such that I do not consider that an order for provision in the foregoing amount of $250,000 should be reduced, let alone extinguished, by reason of the competing claim of the defendant." 22 Mr R D Wilson, who appeared for the appellant, focussed his attack on the Master's judgment on the finding that the widow had not accounted for assets in excess of $250,000, the amount awarded to the plaintiff. 23 Counsel for the plaintiff at the trial made this submission in written submissions lodged prior to the hearing. It was based on an analysis of the evidence in a typewritten document which, with hand written amendments, became exhibit A. Under the heading "Income and Assets", excluding matters now known to be irrelevant, were listed the proceeds of the sales of 8 Palmway Circuit, 4/56 Wharf Street, and the Jaguar. A hand written amendment showed the sale of the 18 foot boat for $8000. These amounts totalled $508,000. The ANZ term deposit of $30,527 was also listed, but wrongly, as it was still held at the date of trial. 24 The next section listed what was described as "Expenditure" which, with hand written amendments, was as follows: Payment of mortgage on Regency Court $60,000 [the true figure was $55,000] Payment to Nadine [the plaintiff's sister] $50,000 Legal costs – Nadine (estimated) $15,000 Legal costs – current action $24,000 [this was also an estimate: blue 77] Repairs to MG $46,570 Further legacies under will $15,000 Furniture $20,000 St George bank account $38,000 CitiBank Revolving Credit $17,804 Living expenses – four year period (estimated) $100,000 25 The amount shown for furniture was the difference between the value of the furniture and personal effects shown in the widow's affidavits of 1 August 2002 and 21 March 2003. The amount of $38,000 for the St George bank account was the difference between the credit balances at the date of death and at the time of the second affidavit. 26 These amounts listed totalled $381,374, leaving $126,626 apparently not accounted for. It is obvious however that the some of the items are only liabilities. This category includes the legal costs payable to Nadine and the widow's costs of the subject proceedings. The amount of $17,804 for the CitiBank Revolving Credit was also a liability. None of these iterms were disbursements from the sales proceeds shown in the first part of the document. These adjustments total $56,804 and when these are deducted the apparent difference becomes $183,430. 27 Exhibit A did not include the costs of the purchase and sale of vacant land at 14 Palmway Circuit, Tuncurry and the sale of the other two properties, the Jaguar and the boat. It did not include the widow's own costs of the proceedings brought by Nadine which she had paid (blue 56), or the cost of her two trips to Europe and her five trips to the Philippines. It also did not include the $300 a month she had been paying her brother to look after her property in the Philippines (black 50-1). Over this period she had paid her brother about $14,500 (black 51). 28 Exhibit A concludes with a statement "Outstanding unaccounted for cash $250,577". This had been crossed out and replaced elsewhere in the document by the hand written figure of $153,153. The widow was cross-examined on the document, and was asked whether it showed a discrepancy of $153,000 which had not been accounted for. She did not agree. She mentioned the selling expenses, the cost of her overseas travel, the payments to her brother, and the hospital and funeral expenses for her brother's wife which she had paid. 29 In re-examination the widow said that $59,000 had been owing to a finance company on the Jaguar which was paid off from the proceeds of sale (black 53). She said that she spent between $5000 and $10,000 on her trips to the Philippines and $30,000 on her trips to Europe (54). If the trips to the Philippines are taken at $5000 a time these amounts totalled $114,000. Items for which precise amounts were not available were the selling expenses, her own legal costs of Nadine's case, and the expenses for her sister-in-law. In addition the five trips to the Philippines may have cost more than $25,000. If the amount of $114,000 is deducted from the apparent difference of $183,430 [para 26] the balance is $69,430. This amount could readily be accounted for by the selling expenses, her own costs of Nadine's proceedings, and additional travel costs. 30 Thus the evidence did not establish that the widow had failed to account for assets in excess of $250,000. While a submission to this effect had been made in written submissions filed in advance the only suggestion put to her in cross-examination was that she had not accounted for $153,000. My analysis of the evidence shows that the true figure was no more than $69,430 at most, and even this was not unexplained or unaccounted for. 31 The Master therefore misunderstood the facts and his mistake was clearly material. In these circumstances his exercise of discretion cannot stand and this Court must undertake its re-exercise. 32 The widow's asset and income position at the date of trial was established by her evidence and her 2001 and 2002 income tax returns. She owned the former matrimonial home said to be worth $750,000, her investment property at 32 Regency Circuit, her home in the Philippines, her car, furniture and effects, and bank accounts totalling $38,280. She had liabilities of $42,893. She said her weekly expenses totalled $508 but this did not include the payments to her brother of $300 a month, medical expenses not reimbursed by Medicare, or anything for foreign travel. 33 Her taxable income for the year ended 30 June 2001 was $9153 but $3505, part of the undeducted purchase price of her annuity, which was deductible for tax purposes, did not affect her cash flow (blue 40-1). Her income included net rents of $5391 from 8 Palmway Crescent and $3272 from 4/56 Wharf Street and a loss of $300 from 32 Regency Circuit. The non-cash items for depreciation of $998, $390 and $939 and of $455 for borrowing expenses have to be added back. The result is a total income in cash flow terms of $16,115 or $310 a week. 34 The widow's taxable income for the year ended 30 June 2002 was $17,237. This comprised her annuity of $2858, a capital gain of $11,372 (50% of the nominal capital gain) from the sale of 8 Palmway Crescent on 19 April 2002 (blue 71), net rents of $3706 for 4/56 Wharf Street and $3025 for 8 Palmway Crescent and a loss of $3724 for 32 Regency Circuit. The non-cash items for depreciation of $312, $785 and $708 and $455 for borrowing expenses have to be added back. If the capital gain on the sale of 8 Palmway Crescent is ignored her total income in cash flow terms was $8125 or $156 a week. 35 These figures, and the balance of the evidence, show that the widow has been living on capital since the death of her husband. Thus at the date of his death she had her home and three investment properties, two cars and a boat. When she swore her first affidavit on 1 August 2002 she had her home, two investment properties and a block of land. She had sold the Jaguar and the boat and given away the restored MG. 36 Seven months later when she swore her second affidavit she only had her home and one investment property, having sold the vacant land and 8 Palmway Crescent. Her fixed term annuity policy which was said to provide an income of $1900 a month when her husband died did not produce income at anything like this rate during the 2001 and 2002 tax years. She was not asked whether she was still receiving income from this policy or to explain the difference in the receipts. 37 Her only disclosed source of income when she swore her second affidavit was her investment property at 32 Regency Circuit. During the year ended 30 June 2002 this produced a tax loss of $3724 (blue 65), largely because of interest payments of $5462 and land tax of $2356, although this may have represented tax for more than one year. There were also non-cash items totalling $1240. 38 Between August 2002 and March 2003 the widow had reduced the mortgage debt on this property by 63% from $55,000 to $20,089. The sale of the vacant land and of 8 Palmway Crescent would have taken her out of the land tax net. These adjustments should have avoided a loss from her investment property during the 2003 fiscal year and given her a net income from this source of about $7000, but this would still only be $135 a week. 39 In her second affidavit the widow disclosed liabilities of $42,893 which would probably attract rates of interest much higher than those she was receiving on her bank accounts. On the evidence the widow will have to sell another property very soon and also reduce her expenditure. For example she can no longer afford to make payments of $300 a month to her brother. She also has unquantified liabilities for Nadine's legal costs and her actual costs of the trial and this appeal. 40 The respondent tendered the affidavit dated 4 May 2004 of Mr Phillip Peterson, a valuer. This annexed valuations as at 7 April 2004 of the widow's two remaining properties. Her home was valued at $850,000 and her investment property at $425,000, amounts substantially above the figures of $750,000 and $300,000 in her affidavit of 21 March 2003. There was no objection to the tender, no cross-examination of the witness and no evidence in reply. The valuer was not permitted to inspect the interior of the two properties. The Court may be permitted to know that the real estate market in New South Wales has fallen somewhat in recent months but is has no knowledge of any change in values at Tuncurry. When this Court intervenes and has to reassess or re-exercise a discretion it will readily receive evidence of events which have occurred since the trial. See Warr v Santos [1973] 1 NSWLR 432. 41 The sale of the widow's investment property will attract the new vendor stamp duty and also capital gains tax on 50% of the nominal capital gain over the original purchase price of $165,000. On the valuation evidence this would involve tax on an amount in the order of $110,000 or more, and thus at top marginal rates. On the other hand a sale of her home would attract neither the vendor stamp duty nor capital gains tax. Apart from reducing her life style in Australia the widow could also move back to the Philippines. Although the Court is not authorised to make decisions about these matters there is no escape from a finding that the widow will have to sell at least one of her properties in any event. 42 She may well be anxious to retain the home she shared with her husband, although its jetty at the rear, two car lock up garage, and substantial gardens are now well in excess of her requirements. There is no evidence about the internal arrangements. However the valuation reveals the existence of two registered mortgages over her home in favour of the ANZ Bank for undisclosed amounts. These indicate the reality of the situation in which she finds herself. 43 The widow has spent $30,000 on travel to Europe, given $14,500 to her brother, and spent $47,520 on restoring an MG vintage car which she then gave to a son of the deceased. There is no evidence of his income and asset position but on no view did he have needs for that car, or for its restoration that could diminish the plaintiff's entitlements under this Act. The widow bought a block of vacant land for $165,000 and sold it not long afterwards for the same price incurring a substantial loss in the process. In the period of less than four years between June 1999 when her husband died and the trial in March 2003 she has made five trips to the Philippines. 44 The respondent's summons was filed on 7 December 2000 shortly after Nadine filed hers. The widow's second trip to Europe took place in 2001 (black 51). Her expenditure on that trip cannot reduce the respondent's entitlements and the other expenditures referred to above are in the same category. Since her husband died the widow has been living well in excess of her income and on capital but she has made no adjustments apart from selling properties and borrowing from banks. 45 The gambling win belonged to her beneficially and she should not be in a more disadvantageous position because she arranged for all assets purchased with her winnings to be put in the joint names of her husband and herself. However the deceased had assets of his own worth some $500,000 which could not have supported the extravagant lifestyle that the couple embarked on after February 1995 (blue 38) involving the purchase and sale of expensive boats and motor vehicles. 46 The widow said (blue 28) that in this way the deceased had spent the assets received from his father but I am not prepared to act on this assertion because this extravagant lifestyle could not have been supported by the deceased's assets alone. 47 The respondent was a qualified person under the Act who was in a position of great disadvantage because of her limited education, poor health, and minimal assets. However she is not entitled to an order which could only be satisfied out of assets acquired with funds provided by the widow from her gambling win, or which would require the sale of the former matrimonial home. Thus she is not entitled to an order which would enable her to buy a house in Longreach or anywhere else. 48 On the other hand, given her father's inheritance of $500,000 from his father, and the widow's assets acquired with her own funds, it seems to me that an order in favour of the respondent for $60,000 is amply justified on the evidence. This, and the award in favour of Nadine, notionally leaves the widow with approximately 80% of the assets her husband owned in his own right four years before his death, and, subject to the burden of costs, with what is left of the assets purchased with her own funds. 49 The widow's appeal therefore succeeds and the following orders should be made: 1. Appeal allowed in part. 2. Orders 3, 4, and 5 of the Master set aside. 3. In lieu thereof order that the appellant pay the respondent the sum of $60,000 together with interest at the rate prescribed pursuant to s 84A(1) of the Wills Probate and Administration Act 1898 from 26 August 2003 until payment. 4. Orders 1 and 2 confirmed. 5. Costs of the proceedings before the Master and in this Court reserved for further argument on written submissions to be lodged by the parties. The appellant's further submissions are to be lodged within seven days, the respondent's within a further seven days, and any written submissions in reply within a further seven days after that. 50 GILES JA: I agree with Handley JA. 51 McCOLL JA: I agree with Handley JA. ********** Last Modified: 08/27/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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