New South Wales Supreme Court CITATION : Karayannis v Smith [2004] NSWSC 667 HEARING DATE(S) : 19/04/04, 26/07/04 JUDGMENT DATE : 27 July 2004 JURISDICTION: Equity Division JUDGMENT OF : Master Macready at 1 DECISION : Paragraph 50 CATCHWORDS : Family Provision. Claim by two children of deceased's first marriage. Deceased's joint property received by her third husband. Orders made for legacies and designation of notional estate. PARTIES : Nicholas Karanyannis and Stephanie Karayannis by their tutor Dean Karayannis v Smith FILE NUMBER(S) : SC 2528 of 2002 Ms M Tzannes for plaintiffs (19/04/04) COUNSEL : Mr DeBuse for plaintiffs (26/07/04) Mr L Ellison for defendant SOLICITORS : Marsdens The Lawgroup for plaintiffs Teece Hodgson & Ward for defendant - 1- IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY Tuesday 27 July 2004 2528/2002 NICHOLAS DEAN KARAYANNIS AND STEPHANIE LEIGH KARAYANNIS BY THEIR TUTOR DEAN KARAYANNIS v EDWARD MICHAEL SMITH JUDGMENT 1 MASTER: This is an application under the Family Provision Act 1982 (NSW) by the two children of the late Leonie Robyn Smith who died on 18 December 2000. She was survived by, inter alia, the plaintiffs' father who is the tutor of the two plaintiffs. The eldest plaintiff, Nicholas, has recently turned 18 years. The remaining defendant is the widower of the deceased. He was her third husband. The deceased's second husband and their son, Joshua, also survived the deceased. They have been given notice and make no claim. The last will of the deceased 2 The last will of the deceased was made on 4 April 2000 under which the deceased left the whole of her estate to the defendant and appointed her sister executrix. No probate was applied for as there was no actual estate but for the purposes of this application Letters of Administration were granted to the plaintiffs' tutor. Assets in the estate 3 As I have mentioned there were no relevant assets in the estate but there was a jointly owned property at Glenmore Park in Sydney, which passed to the defendant by survivorship. If any order is made in favor of the plaintiffs there will have to be an order for the designation of notional estate. 4 The costs incurred to date on the plaintiffs' part are $37,458.00 and on the part of the defendant of $49,650.00. Family History 5 In 1979 the deceased married her first husband, the tutor of the plaintiffs. Their son, Nicholas, was born on 19 January 1986 and Stephanie was born on 24 July 1987. 6 The deceased and the tutor separated in December 1990 and they divorced in 1991. In that year the deceased married Dwyn Marklew. She had a child, Joshua, as a result of that marriage. 7 The deceased first met the defendant, Edward Smith in September 1974. In 1996 or 1997 the deceased separated from her second husband and commenced a de facto relationship with the defendant in mid 1997. 8 On 19 November 1997 the deceased and the defendant bought a property at Glenmore Park for $317,500.00. The defendant contributed $50,000.00 and there was a mortgage over the property of $297,000.00. There is some doubt as to whether the mortgage was initially $330,000 with the defendant making his contribution of $50,000 shortly thereafter when he sold a boat and other property. In any event I am satisfied that he contributed $50,000 to the initial purchase or shortly thereafter. 9 In September 1999 the defendant left work to go into another business but because of the deceased's ill heath he could not do so. In November 1999 the deceased was diagnosed with the brain tumor. On 7 February 2000 the deceased and the defendant married. 10 There were a number of improvements carried out to Glenmore Park. The decision to carry out these improvements was made before the deceased was diagnosed with the brain tumor. The funds ultimately used for this purpose were as a result of certain disability and insurance monies which were paid to the deceased. These amounted to $349,307.00. 11 The deceased made her will on 4 April 2000 and on 18 December 2000 she died. In January 2001 the plaintiffs returned to live with their father, Dean, who is their tutor. 12 In June 2001 the defendant commenced a de facto relationship with Elaine Maynard. 13 On 20 August 2001 the deceased sold the property at the Glenmore Park for $452,500.00. On 7 September 2001 he bought a property at Gross Vale in his own name substantially using the funds from the sale of Glenmore Park. The purchase price was $552,500. Shortly after the purchase his partner contributed $85,000 to reduce his outstanding indebtedness. The defendant intends to transfer to her a half share of the property in recognition of her contribution. 14 The summons was filed on 3 May 2002 within the time limited by the Act and Letters of Administration have been granted to the tutor. At the present time Nicholas is aged 18 years and is apprenticed as a roof tiler. Stephanie is almost 17 year of age. The defendant is aged 48 years. Eligibility of the plaintiffs 15 There is no doubt that being children of the deceased the plaintiffs are eligible persons. 16 In applications under the Family Provision Act the High Court in Singer v Berghouse (No 2) (1994) 181 CLR 201 set out the two stage approach that a Court must take. At page 209-210 it said the following: "The first question is, was the provision (if any) made for the applicant 'inadequate for [his or her] proper maintenance, education and advancement in life? The difference between 'adequate' and 'proper' and the interrelationship which exists between 'adequate provision' and 'proper maintenance' etc. were explained in Bosch v Perpetual Trustee Co Limited. The determination of the first stage in the two-stage process calls for an assessment of whether the provision (if any) made was inadequate for what, in all the circumstances; was the proper level of maintenance etc. appropriate for the applicant having regard, amongst other things, to the applicant's financial position, the size and nature of the deceased's estate, the totality of the relationship between the applicant and the deceased, and the relationship between the deceased and other persons who have legitimate claims upon his or her bounty. The determination of the second stage, should it arise, involves similar considerations. Indeed, in the first stage of the process, the court may need to arrive at an assessment of what is the proper level of maintenance and what is adequate provision, in which event, if it becomes necessary to embark upon the second stage of the process, that assessment will largely determine the order which should be made in favour of the applicant. In saying that, we are mindful that there may be some circumstances in which a court could refuse to make an order notwithstanding that the applicant is found to have been left without adequate provision for proper maintenance. Take, for example, a case like Ellis v Leeder, where there were no assets from which an order could reasonably be made and making an order could disturb the testator's arrangements to pay creditors." Nicholas Karyannis 17 Nicholas is 18 years of age; he is single and has no dependents. He had worked as an apprentice chef but he recently commenced work as an apprentice roof tiler. He earns $300.00 net per week from which he pays $50.00 board per week to his father. He has a few personal assets worth $1,200.00 and a car worth less than $600.00, which apparently is disabled, and he cannot afford to repair it. Nicholas will shortly enroll at TAFE in order to study to complete his apprenticeship. 18 Nicholas had good relationship with his mother and spent the whole of his life with her. He has not contributed to the estate of the deceased and it necessary to see how he has been left without adequate and proper provision for his maintenance, education and advancement in life. The relevant matters identified are as follows: - 19 Nicholas has a pacemaker fitted and this has to be replaced every seven years. It was due to be replaced in June this year. Apart from this he is in good health. The pacemaker allows him to lead a normal life. 20 He needs to meet the cost of a replacement pacemaker every seven years in the sum of $5,500.00. Although it is covered by MBF up to date he will have to meet this cost in the near future presumably unless he sensibly continues his MBF membership. 21 He needs to purchase a utility so that he can travel to his work, which is in different locations in Sydney. Such a vehicle would cost between $20,000.00 and $25,000.00. 22 He needs to meet the costs of books needed for his studies. These are estimated at $300 per year. His course fees will amount to $480 per annum for a period of four years. 23 He needs to meet the costs associated with the tools he will need for his apprenticeship. He does not identify a cost for this item. 24 He would like a fund for contingencies that might arise in the future. He asks in submissions for a legacy in his favor in the sum of $70,000.00. Stephanie Karayannis 25 Stephanie is nearly 17 years of age; she is single and lives at home with her father. She is currently in Year 12 at High School studying for the HSC and would like to study physiotherapy when she leaves school. She lives with her father and is dependent upon him for her needs. She has a part time job which pays between $90.00 and $100.00 a week net. She has savings of $820.00 and has no substantial assets. 26 As Stephanie is dependent upon her father, like her brother, it is necessary to look at the present situation of Dean, the tutor. Dean Karayannis 27 Dean Karayannis is employed as sales representative in the automotive industry earning $42,500.00 gross per year with the benefit of a company car. He owns his home at 36 Kooloona Crescent, Bradbury in New South Wales on which there is a mortgage of $89,000.00 with monthly repayments of $905.00. He also receives $50.00 per week board from his son Nicholas. He has arrears of school fees of approximately $3,000.00 and he will need to pay further amounts of $1,250.00 per term until Stephanie completes Year 12. It is likely that he will soon owe $4,500.00 for the arrears in school fees. He also has a Visa card with $3,000.00 limit, which is overdrawn by $1,800.00, and he is concerned that recovery might be brought against him in respect of the outstanding amount. 28 It is clear that there was a good relationship between the plaintiff, Stephanie, and her mother during her mother's lifetime. 29 It is necessary to see how Stephanie will be left without adequate and proper provision for her maintenance, education and advancement in life. She says that she would like a reliable, small car to be purchased at a cost of between $18,000.00 to $20,000.00 to get to university. Whether she will in fact need a car may well be debatable because at this stage she does not know what university she will attend as that will dependent upon her results of the end of this year. She will incur university fees, which if she obtains a HECCS loan will amount to about $40,000.00 although she can save $10,000.00 if she pays in, full up front. She will also need funds for textbooks that will cost between $100.00 and $200.00 each several of which are needed each year. She expresses the desire to move out of home before completing her university degree in order to save her father expense. In these circumstances she says she will have further needs to purchase household items and white goods. Such a suggestion may be appropriate with a large estate where adequate funds are available but would hardly be appropriate in the circumstances of this case. There is no suggestion that the father will not continue to provide accommodation for her and her brother while they complete their tertiary and apprenticeship studies. 30 It is also necessary to look at the situation in life of others having a claim on the bounty of the deceased. In this case the only relevant person is the defendant, Mr Edward Smith. Position of the defendant and Notional estate 31 As I have earlier pointed out an order can only be made in the plaintiffs' favor if there is notional estate available to be designated as such notional estate. 32 The relevant prescribed transaction, which is alleged under s 23(b) (iii) of the Act, is the failure of the deceased to sever the joint tenancy. By the combined effect of s 22(1)(a)(i), (4)(b) and (5) there will be a prescribed transaction if the deceased omits to sever the joint tenancy immediately before death and full valuable consideration in money or money's worth is not given for the omission of the deceased to do that act (s 22(1)(b)). 33 In Wade v Harding (1987) 11 NSWLR 551 Mr Justice Young, as he then was, concluded that on the facts of that case "what was forgone in not severing the joint tenancy was received by continuing to be a joint tenant." This conclusion appears to be because he formed the view that immediately before death the deceased had an equal chance with the joint tenant of benefiting by the jus accrescendi. 34 In Cameron v Hills unreported 26 October 1989 Needham J described that approach in these terms: "With great respect to his Honour, I find it difficult to see how a joint tenant, about to die immediately, can be said to have an equal chance of surviving the other joint tenant. The Court must look at the position the moment before death. Whatever may have been the facts in that case justifying the conclusion, there are no such facts in this case. Immediately before the death of this deceased there was no rational prospect of his surviving the defendant. Accordingly, in my opinion, no valuable consideration in money or money's worth was given for the omission of the deceased to sever the joint tenancy." 35 Provided that a deceased has suffered some injury, had a medical problem or set in train some sequence of events as a result of which death ensues then, like His Honour Justice Needham, I would normally conclude that there was no rational prospect of the deceased surviving his co-tenant. In the present case the deceased was suffering from a brain tumour for some time prior to her death and she died as a result of that tumour. In these circumstances I would conclude that no valuable consideration was given and thus there is a prescribed transaction. 36 Section 27 of the Family Provision Act is in the following terms: "(1) On an application in relation to a deceased person, the Court shall not make an order designating property as notional estate of the deceased person unless it has considered: (a) the importance of not interfering with reasonable expectations in relation to property; (b) the substantial justice and merits involved in making or refusing to make the order; and (c) any other matter which it considers relevant in the circumstances. (2) In determining what property should be designated as notional estate of a deceased person, the Court shall have regard to: (a) the value and nature of property the subject of any relevant prescribed transaction or distribution from the estate of the deceased person; (b) where, in relation to any such prescribed transaction, consideration was given, the value and nature of the consideration; (c) any changes over the time which has elapsed since any such prescribed transaction was entered into, any such distribution was made or any such consideration was given in the value of property of the same nature as the property the subject of the prescribed transaction, the distribution or the consideration, as the case may be; (d) whether property of the same nature as the property the subject of any such prescribed transaction, any such distribution or any such consideration could, during the time which has elapsed since the prescribed transaction was entered into, the distribution was made or the consideration was given, as the case may be, have been applied so as to produce income; and (e) any other matter which it considers relevant in the circumstances." 37 The financial circumstances of the defendant have changed substantially over the last few years. His present situation is that he owns the property at Gross Vale estimated to be worth between $850,000.00 and $800,000.00. He has furniture valued at $200,000.00 shares worth $5,000.00 a car worth $42,000.00 and superannuation worth $60,000.00. He has his interest in the business in which he and Elaine Maynard invested last year with their partners Mr. & Mrs. Bell. They invested $1,600,000.00 in the purchase of the business all the funds of which were borrowed. There is no evidence of the value of that interest. 38 His partner has no assets other than those which she holds jointly with the defendant. These are her possible interest in his home and her interest in the business. 39 The personal liabilities of the defendant appear to be as follows: - House loan $320,000.00 Credit cards $46,432.31 40 He will reduce the credit card accounts by a small amount shortly after he has paid his solicitors costs in a few days time. 41 He has his liability on the business loans, which he and the Bells have guaranteed to the Bank. The present debt is $652,972.00 with a limit of $700,000.00 and the amount outstanding on the bill facility is $1,600,000.00. The bank has security over their homes including that of the defendant. 42 There is no doubt that the deceased and the defendant had a good relationship which unfortunately was cut short by her premature death which neither anticipated. 43 Central to this case are the contributions of the deceased and the defendant to the purchase of the property at Glenmore Park. The defendant provided $50,000 towards the purchase price of $317,500.00. Fortunately the deceased and the defendant took out disability and other insurance which could be called upon once the deceased was diagnosed. As a result she received $368,000.00 in March 2000. Tax of $19,000 was paid and payments made off the home loan of the parties in the amount of $204,000. A further $74,000 was paid off the loan on the defendant's parents' house which was also mortgaged to facilitate the purchase. There were also improvements to the property in an amount of $53,000.00. The funds for these improvements came from the funds that were available to the deceased and the defendant, which consisted of the balance of the insurance payment and their earnings during that year which totalled some $36,000.00. It was suggested in cross-examination that more had been received by the defendant from the deceased but this really did not take full account of transfers between the parties bank accounts. 44 Glenmore Park cleared $370,000 on its sale and all these funds were put into the purchase of Grose Vale after the death of the deceased. It is plain that the overwhelming contributions to this fund resulted from the contributions made from the insurance payout to which the deceased was entitled as a result of her most unfortunate illness. 45 It is plain that the defendant's business has not been as successful as anticipated. They have had problems with a supplier from China which has lost them a major client. In the year ended 30 June 2004 the defendants income was $82,080 from which he paid business expenses of $53,400 made. His partner's income for the year was $27,550. In June there was not sufficient funds to pay wages to various partners in the business. Given the extent of the borrowings in the business there must be a substantial doubt as to whether or not the defendant will be able to meet any order made in these proceedings. He appears to have made payments to his solicitors on account of his own liability for costs in the proceedings. 46 Before her death the deceased anticipated that the plaintiffs and her son, Joshua, would remain living with the defendant. This has not occurred and there is no fault on the defendant's part in this regard. The Court however must in considering the application have regard to the circumstances of the applicants at the time of the hearing and also consider at that time the amount of the estate or any notional estate. 47 Having regard to the present circumstances of the plaintiffs it is in my view appropriate that some assistance be given to the plaintiffs with their tertiary studies. Balanced against this is of course is the difficult situation in which the defendant finds himself as a result of the lack of success so far in his business. That lack of success is not a result of any personal fault on the part of the defendant. The defendant as things turned out, unfortunately, only had a short relationship and marriage with the deceased. This affects the obligation to make provision for him by the deceased. The present factual situation leads to a need to make provision not only for the defendant but also for the plaintiffs. 48 In my view an appropriate provision for each of the plaintiffs is a sum of $40,000.00. It is necessary to consider the various factors referred to in section 27 of the Act which I have set out earlier. There is nothing in the evidence which suggests that there were any reasonable expectations in relation to the property. In this regard there were no promises by the deceased upon which it was reasonable for the defendant to rely given the changed circumstances of the children. 49 So far as the substantial justice and merits are concerned the defendant proceeded with the purchase of a new home and the purchase of the business in the full knowledge of the likelihood of the commencement of the present proceedings and their actual existence. The proceedings were commenced before the expiry of the relevant period. In these circumstances the actions of the defendant, although probably appropriate in the circumstances do not call for the Court to refrain from making an order in respect of notional estate. He must be taken to have proceeded in the knowledge of this risk. See generally D'Albora v D'Albora [1999] NSWSC 468. 50 The orders of the Court are as follows: -- 1. Order that each of the plaintiffs receive a legacy out of the estate and notional estate of the deceased in the sum of $40,000.00. 2. Designate as notional estate the defendant's interest in the property 327 Bells Road, Grose Vale, New South Wales. 3. Order that the plaintiffs' costs on a party and party basis be paid out of the estate or notional estate of the deceased. 4. Order that each of the legacies in paragraph 1 above be paid as to the sum of $10,000.00 within two months of today's date and the balance within six months of today's date. If not paid within these times the legacies are to carry interest at the rate provided for under the Wills Probate and Administration Act 1898 (NSW). 5. Liberty to apply. ********** Last Modified: 08/03/2004 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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. 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