Case Note: Darveniza V Darveniza & Drakos

The deceased had made no provision for the applicant Steven, for reasons which the deceased set out as:

1. I have during my lifetime purchased income producing properties in his name; and
2. I have recently at his request transferred the management of those properties to him in order that he may be independent of me following my death; and
3. He is a potential beneficiary under various trusts established by me during my lifetime; and
4. He has indirect interests in other properties owned by a company established by me in which he is a shareholder.

The deceased had also made no provision for a number of his other children, however their applications for provision were settled prior to trial.

Martin J described the two stage test in Singer v Berghouse as:

1. Was the provision made inadequate in all the circumstances?

If yes then:

2. What provision ought to be made?

Drawing from numerous decisions, his Honour summarised the legal considerations as follows.  Firstly, the court must determine whether the applicant has been left without adequate provision for his or her proper maintenance, education and advancement in life. Secondly, when considering the proper level of maintenance, the following, at least, should be taken into account:

1. the applicant’s financial position,
2. the size and nature of the deceased’s estate,
3. the totality of the relationship between the applicant and the deceased,
4. the relationship between the deceased and other persons who have legitimate claims upon his or her bounty,
5. present and future needs including the need to guard against unforeseen contingencies.

Thirdly, the use of the word proper means that attention may be given, in deciding whether adequate provision has been made, to such matters as what used to be called the “station in life” of the parties and the expectations to which that has given rise; in other words reciprocal claims and duties based upon how the parties lived and might reasonably have expected to live in the future.

Fourthly, maintenance may imply a continuity of a pre-existing state of affairs, or provision over and above a mere sufficiency of means upon which to live.3  Fifthly, support, may imply provision that exceeds a person’s bare needs. The use of the two terms serves to amplify the powers conferred upon the court. Furthermore, provision to secure or promote advancement would ordinarily be provision beyond that for the mere necessities of life. His Honour observed that it was not difficult to conceive of a case in which it might appear that sufficient provision for support and maintenance had been made, but that in the circumstances, further provision would be proper to enable a potential beneficiary to improve his or her prospects in life, or to undertake further education. This might be the case where, for example, a promise had been made, or where a claimant reasonably held an expectation that such provision would be made.4

Sixthly, the totality of the relevant relationship would include:

1. any sacrifices made or services given by the claimant to or for the benefit of the deceased;
2. any contributions by the claimant to building up the deceased’s estate; and
3. the conduct of the claimant towards the deceased and of the deceased towards the claimant.5

Seventhly, any such sacrifices, services or contributions (whether described as giving rise to a moral duty/moral claim or not) are a relevant consideration (as part of the totality of the relationship between the claimant and the deceased), but are neither a necessary nor a sufficient condition for the making of an order under the Act.6

Eighthly, a claimant may fail to establish that the disposition of the deceased’s estate was not such as to make adequate provision for his or her proper maintenance, etc, even though no provision was made for him or her in the will.7

Ninthly, the determination of whether the disposition of the deceased’s estate was not such as to make adequate provision for the proper maintenance, etc, of the claimant will always, as a practical matter, involve an evaluation of the provision, if any, made for the claimant on the one hand, and the claimant’s “needs” that cannot be met from his or her own resources on the other.8

Tenthly, whilst the adequacy of the disposition is assessed as at the time of the testator’s death, any order that might be made is considered in the light of the applicant‘s circumstances at the time of the trial.9

His Honour cautioned that care must be taken not to extend the idea of “moral claim” beyond the language of the statute, and recognised that it was never intended by the legislation that “freedom of testamentary disposition should be so encroached upon that a testator’s decision expressed in his will will have only prima facie effect, the real dispositive power being vested in the Court”.

His Honour took into account that the deceased had made some substantial provision for the applicant during the deceased’s life.  Three properties had been purchased by the deceased in the applicant’s name which properties were managed by the deceased until 1999 when the applicant took them over.  At that time, the applicant assumed a debt of just over $300,000.00.  At the time of the trial the evidence demonstrated that the applicant’s true net worth at the time of the deceased’s death was about $3.885 million, although, on the applicant’s case, had decreased to about $2.58 million at the time of trial. Of importance to this issue, was the fact that the applicant had suffered a serious injury some years prior to deceased’s death and his capacity for work, and therefore earning an income, had been significantly damaged.

Whilst his Honour found that the applicant’s evidence had overstated his contribution to the building up of the deceased’s estate, his Honour nevertheless found that the applicant did perform a substantial amount of work over many years in his father’s business and made a substantial contribution to the accumulation of assets by the deceased.  His Honour also accepted that the deceased had made various promises to the applicant over the years as to his testamentary intentions although the nature and extent of the promises or representations were not of a commercial nature.  His Honour accepted that many of those promises were not fulfilled.

His Honour found that some of the reasons expressed by the deceased in his will for not making provision for the applicant were misconceived, and further that there was no real prospect that the applicant would receive any distributions from a discretionary trust of which he was a beneficiary.

His Honour also found on the evidence the deceased had been an extremely harsh disciplinarian and, despite the deceased’s physical and mental mistreatment of the applicant as a child, the relationship between them was not completely destroyed.

In concluding that the applicant had satisfied the jurisdictional requirement his Honour took into account:

1. The estate was very large;
2. The applicant had worked long and hard for his father and had contributed to the growth of the deceased’s property interests;
3. At the date of death the applicant had substantial assets but also substantial liabilities which were subject to the vagaries of the financial market;
4. Two of the reasons not providing for the applicant were either misconceived or based on a misunderstanding of their value;
5. The applicant had suffered an injury which meant he had significant limitations on his capacity to earn an income; and
6. The provision made by the deceased to the applicant during his lifetime did not represent so much a gift but rather a discounted sale because of the true effect of the borrowings which the applicant had to secure in order to receive the gifts.

Recognising that there was no formula which could be used to determine an appropriate amount for further provision, and bearing in mind the warnings in cases involving large estates that there is a great temptation on a Court to be over generous with another person’s money, his Honour assessed further provision at $3million.

The court however rejected two alternative claims.  The first was a claim for proprietary estoppel by encouragement.  That claim was based upon certain representations which the deceased had made during the course of his lifetime, upon which the applicant had relied, such that it was unconscionable for the deceased not to honour his promise.  His Honour found however that the representations did not have the pleaded effect, primarily because the property interests were extremely complex and the representations which were made were imprecise; his Honour described the applicant’s recollection as “more one of impression than of detail”11.  Furthermore the fact that the representations were made over a lengthy period of time meant that at the various times they were made, some of the deceased’s companies did not exist and therefore the representations could not bind them.

The second was a similar claim that the representations were deceptive and misleading ones, made “in trade or commerce” within the meaning of the Trade Practices Act 1974, by the deceased in his capacity as the controller of the companies. This claim also failed on the basis that the representations were insufficiently certain to support this type of claim, but more importantly because his Honour found that the representations were made between a father and a son, and not “in trade or commerce” within the meaning of the Act.

In his further judgment as to costs12, his Honour observed that in the ordinary case where an applicant’s claim for provision out of an estate is successful, the usual order is that the applicant’s and the executor’s costs be paid out of the estate on an indemnity basis.  In this case, however the respondents had made an offer dated 11 October 2012, which was then amended on 15 October 2012.  The offer was not one within the meaning of the UCPR but rather was a Calderbank offer. To understand the costs order which his Honour made, the details of the offer need to be set out.

The terms of the offer were contained in a deed and were expressed to be between all of the parties to the two actions and sought to bind a non-party, the applicant’s wife.  The applicant was to be paid a sum of $3.6M excluding costs which were to be fixed in the sum of $150,000.00.

In return for the payment, the applicant was to discontinue both of his actions and transfer his shares in the companies in the proceedings, as well as in a company which was not a party to the proceedings, to the executors. The shares of the companies were defined as having a value of $800,000.00. By the terms of the offer the applicant and his wife (a non-party) would relinquish their entitlements under the three Darveniza Family Trusts. The settlement sum was to be paid:

1. As to $350,000.00 within thirty (30) days of the date of the deed; and
2. As to $3.25M within twelve (12) months of the date of the deed.
3. If the executors were “unable to pay the amounts” then the applicant would be entitled to interest on the amount owing from the due date until the payment calculated at a rate of 10%.

The respondents submitted that the value of the offer was approximately $2.9M because the evidence at the trial, after allowing for some discounting, was that the shares were actually worth between $695,000.00 and $740,000.00. His Honour was not persuaded that that was an appropriate measure to use when the deed proposed an agreed value of $800,000.00 for the shares. 

The thrust of the respondents’ submission was to show that under the deed the sum which the applicant was to receive was “so close to $3M that it was unreasonable to reject it”.

Finding that it was reasonable for the applicant to refuse the offer, his Honour observed that some of the terms could not have been realised by any court order including:

1. The offer required a non-party (the applicant’s wife) to relinquish rights she  held; and
2. The offer required a transfer of shares in a number of companies including a company which was not a party to the proceeding.

Secondly the offer itself required the agreement of a non-party, being the applicant’s wife.  Thirdly the proposal was uncertain in that no value was ascribed to the applicant’s right, or indeed the rights of the non-party, as beneficiaries under the family trusts.  If it were the case that there was no value to the rights under the family trusts then the offer was worth no more than $2.8M, a sum which was clearly beaten by the judgment.

His Honour also held that the terms of payment were unacceptable because $3.25M of the offer was to be delayed for a period of 12 months, but could be even longer because the clause allowed for payment to be postponed.  His Honour found that the term was expressed poorly and could have led to further litigation because of the meaning of the phrase “unable to pay the amounts” and also because there was no provision for when the interest would be paid; the only provision was for the rate of interest.

In the circumstances his Honour found that the applicant’s refusal of the offer was reasonable. His Honour therefore ordered indemnity costs in respect of the claim for further provision.

As to the companies claim the respondents sought an order that the applicant pay their costs on a standard basis. The applicant sought an order that the respondents only get their costs in the companies action to the extent that they otherwise would not have been incurred in any event by reason of the FPA. 

Justice Martin concluded that as the cases were run together, that the case primarily related to the family provision claim and the basis of the companies claim was almost entirely supported by the evidence relevant to the family provision claim, the costs of all of the parties be paid out of the deceased’s estate on an indemnity basis so far as those costs related to the family provision application.  In respect of the companies claim, the plaintiff was to pay the defendants’ costs on a standard basis to the extent that those were costs were not incurred in any event by reason of the related family provision application. In so ordering, his Honour observed that the respondents were represented by the same barristers and solicitors in respect of both claims and it was inappropriate that the respondents have the capacity to recover costs in the companies claim without recognition that the costs would in truth be recovered on an indemnity basis in the FPA claim. 

Rebecca Treston QC

Footnotes

1. Per Martin J at [16]
2. Vigolo v Bostin (2005) 221 CLR 191 at [114] per Callinan and Heydon JJ.
3. Ibid at [115].
4. Ibid.
5. Goodman v Windeyer (1980) 144 CLR 490.
6. Permanent Trustee Co Ltd v Fraser (1987) 8 NSWLR 573.
7. Singer v Berghouse (1994) 181 CLR 201.
8. Hunter v Hunter (1987) 8 NSWLR 573.
9. White v Barron (1980) 144 CLR 431 at 441 per Mason J.
10. Pontifical Society for the Propagation of the Faith v Scales (1961-2) 107 CLR 9.
11. At [93]
12. Darveniza V Darveniza & Drakos As Executors Of The Estate Of Bojan Darveniza & Ors (No. 2) [2014] QSC 049 (27 March 2014)