What is "adequate and proper" provision in a $1 Billion deceased estate?
The Court of Appeal of Western Australia was asked to consider this very question in the recent decision of LEMON -v- MEAD [2017] WASCA 215.
At first instance, Master Sanderson awarded the respondent adult daughter further provision from her late father's deceased estate to the extent of $25M and on appeal this was reduced to $6.1M.
The decision is significant not only because of the size of the estate under consideration, but because of the often vexed question of what is "adequate and proper" provision and how should a Court determine this question having regard to the legal principles it is required to consider and the facts it has to work with. The decision also highlights the difficulty in quantifying adequate and proper provision regardless of the size of the estate and notions of what is "fair."
Summary of Facts
The respondent, Ms Meade, is the adult daughter of iron ore magnate Michael John Maynard Wright. The will (which had been validly altered by a codicil) made provision for Ms Mead in the amount of $3M with such entitlement coming from a discretionary trust set up under the will.
Ms Mead applied for further provision contending that this amount did not make adequate and proper provision for her maintenance, support, education and advancement in life. She is 19 years old. Her application was made pursuant to s6(1) of the Family Provision Act 1972 (WA) ("the Act"). The bulk of the estate had already been distributed by the time the matter came on for hearing and the amount of $45,272,231.18 remained to be distributed. $3M of that was cash and the balance inter-company loans. As one may imagine, the deceased had a complex estate with company trusts and assets in America as well as Australia. The will was a very complex document.
On appeal the Court of Appeal agreed that the Master was correct in finding that the will did not make adequate and proper provision for Ms Mead, however, the exercise of the Master's discretion to increase the amount from $3M to $25M was flawed.
The deceased was survived by three adult children from an earlier marriage. Ms Mead was the child of a relationship between her mother Ms Kirby and the deceased. Ms Kirby never cohabited with the deceased and the evidence disclosed that he had very little to do or interest in Ms Mead's life or Ms Kirby's support. He paid his statutory child support and private school fees but no emotional support or love and care was shown. It was agreed that Ms Mead did not have a close and loving relationship with the deceased. It was also agreed that the first and second appellants who were the other adult children of the deceased also did not have a close and loving relationship with the deceased. Provision was made for the deceased's son; the deceased's wife and the first and second appellants in far greater amounts than that provided for to Ms Mead. The value of the provision to each of the other children was $400,000,000.
The Master was concerned to note that Ms Mead's entitlements to her $3M was entirely dependant on the discretionary trust having a maximum capital sum in it of $3M. There was questions in the Master's mind about the obligations of the Trustee to maintain the capital of the trust, but in any event, the Master felt that Ms Mead was really at the hands of a Trustee to determine when and how the trust was to be maintained to ensure a balloon capital sum of $3M was preserved. In addition, the Master held that Ms Mead could not call on the capital or any part of it; the Trustee had absolute discretion to retain all the earnings of the Trust and there was nothing she could do to challenge that decision; and there was an absolute discretion with respect to the income and capital of the trust. He held further that the Trustee - Mr Lemon (who was also a solicitor) had never met Ms Mead nor she him. The fact that they were complete strangers was, curiously, a factor that the Master had regard to in making his award.
The Two Stage Process
We are all familiar with the well known two stage process that the Court must consider in asking the question what is "adequate and proper" provision as espoused by the High Court in See Singer v Berghouse [1994] HCA 40; (1994) 181 CLR 201, 208 ? 209 (Mason CJ, Deane & McHugh JJ); and later in Vigolo v Bostin [2005] HCA 11; (2005) 221 CLR 191 [4] ? [6](Gleeson CJ), [56] (Gummow & Hayne JJ).
The Court of Appeal at [58] held further as follows that the Court's powers and exercise of discretion at the second statge of the two stage process is qualified to ensure that the "purpose" of the provision to be made pursuant to s6(1) of the Act is fulfilled. The Court of Appeal held thus:
"The discretionary power conferred by the Act at the second stage is to interfere with a deceased's dispositions when he or she has left a claimant without adequate provision for his or her proper maintenance, etc. The court is empowered to order such provision from the deceased's estate as the court thinks fit, but the court is not empowered to award more than what is 'adequate' provision for the claimant's 'proper' maintenance, etc. See Coates (509) (Dixon CJ); Blore v Lang[1960] HCA 73; (1960) 104 CLR 124, 134 (Fullagar & Menzies JJ). Those propositions are derived from the statutory text. In particular, the words 'for that purpose' at the end of s 6(1) refer to the purpose identified earlier in s 6(1), namely ensuring that 'adequate' provision is made from the deceased's estate for the claimant's 'proper' maintenance, etc. The text and purpose of s 6(1) qualify the court's power at the second stage. The power is confined by the text and purpose to the making of orders which will ensure that 'adequate' provision is made from the deceased's estate for the claimant's 'proper' maintenance, etc".
The sentence to emphasise here is that the power of the Court is confined by the text and purpose to the making of orders which will ensure that 'adequate' provision is made from the deceased's estate for the claimant's 'proper' maintenance.
In Bosch v Perpetual Trustee Co Ltd [1938] AC 463, Lord Romer at 478 succinctly summarised the legal principles concerning what is "adequate and proper" provision and from this decision one determines that what is indeed "proper" is different to what may be considered "adequate." In Bosch the often cited principle is stated thus:
"The word 'proper' connotes something different from the word 'adequate'. For example, a small sum may be sufficient for the 'adequate' maintenance, etc, of the claimant but, having regard to all the circumstances, including the size of the deceased's estate and the lifestyle to which the claimant had become accustomed during the deceased's lifetime, may be wholly insufficient for his or her 'proper' maintenance. By contrast, a sum may be quite insufficient for the 'adequate' maintenance, etc, of the claimant, and nevertheless be sufficient for his or her maintenance, etc, on a scale that is 'proper' in all the circumstances."
And further -
" 'Adequate' is concerned with the quantum, whereas 'proper' prescribes the standard, of maintenance, etc. The propriety of the provision, if any, for the claimant is to be assessed by reference to all the circumstances including contemporary accepted community standards". See Bosch (476 ? 479).
The Court of Appeal also had regard to the Victorian decision of In Re Buckland, deceased [1966] VR 404, where Adam J discussed the exercise of the court's discretionary power at the second stage of the two stage process, where the deceased's estate is of sufficient magnitude. He held thus at 415:
"I consider the proper conclusion to be drawn from the authorities is that the court's jurisdiction, whatever the size of the estate, is limited by the claimant's need for maintenance and support; but that the maintenance and support to which he or she may for this purpose be treated as needing is that appropriate to his or her station or condition in life. For a child, particularly a dependant daughter of an exceptionally wealthy father, the standard of maintenance may justly be set high ensuring a degree of comfort and freedom from anxiety for the future which for those not so circumstanced might well seem somewhat extravagant, but it should fairly come within the conception of maintenance and support. The greater the estate the more may contingencies, even remote contingencies which may arise in the future, be provided for in the assessment of such maintenance." (emphasis added)
In Ms Mead's case, the Master concluded that given the size of the Deceased's estate and the uncertainty surrounding the interaction between the Will and the Trust taken together with the terms of the Trust itself there had not been adequate provision made for the respondent. See [39] of the decision at first instance. The master was satisfied that the jurisdictional question should be answered in the respondent's favour.
The Court of Appeal held that it was the exercise of the Master's discretion in relation to the second stage of the two stage process, that was flawed. The Court found that the Master observed that that the discretion conferred on the court by s 6(1) of the Act is exercised by reference to three factors; namely the size of the deceased's estate, the needs of the applicant and the interests of other parties having a legitimate call on the deceased's bounty - see [62] of the decision at first instance. However the Court of Appeal had issues with the following part of the Master's reasoning which was as follows. According to the master, the present case was different in the following way:
"The estate is massive and its value irrelevant [sic] in determining the outcome. No other individual will be prejudiced no matter what award (within reason) I make. That means there is no way of triangulating here; put another way, there are no factors to weigh in the balance. There are no markers for an exercise of discretion" see [62] of the decision at first instance.
The "triangulation" referred to is the process of weighing up the three factors; the size and nature of the estate; the needs of the applicant; and the interests of others having a call on the bounty. The master concluded that because the estate was massive and its value irrelevant because the other siblings would not be prejudiced by any order he made - within reason - he determined that it was proper for an award of $25M to be made to Ms Mead on the following basis:
"When the $25 million is paid to [the respondent] the rest of the residuary estate will pass to the [first-named and second?named second appellants]. They will get about $10 million each less perhaps $1 million for costs. That is on top of the $400 million they already have; and they can rest easy in the knowledge their half-sister will be financially secure for the rest of her life" [76].
The grounds of appeal relied on the contention that the Master had erred in law in applying the two stage process to s6(1) of the Act because he failed to determine whether Ms Mead had been left with adequate and proper provision for her maintenance and further that the Master had failed to determine the needs of Ms Mead.
The Court of Appeal held that it was not a relevant factor in determining what is adequate and proper provision to look at what the others were getting because the Court's discretion was not concerned with awarding what was "fair". Rather, what the Court should be concerned with was the jurisdictional question of "adequate and proper" having regard to the above legal principles set out by the High Court.
Further, the Court of Appeal found that the Master had determined as a relevant factor that the Trustees of the Trust had never met Ms Mead and knew nothing of her and she nothing of them, hence the significant discretionary power they held over her by the terms of the Trust was a "capricious power" that held her "at the mercy" of the Trust.
The Court of Appeal exercised its discretion in overturning the Master's award and determined instead that Ms Mead would be adequately and properly provided for with an award of $6.1M. It too has formed an opinion of the reasonableness of this award where there is a seemingly limitless deceased estate from which any award may be made having regard to the needs of the applicant. The Master had regard to actuarial evidence submitted by both parties at first instance. The Master held that this evidence was of "little assistance in determining the outcome of this application."
Therein lies the challenge for both litigants and the Court, The master noted that s 6(1) confers an unfettered discretion on the court [61]. He continued:
"Once the jurisdiction question is answered in a plaintiff's favour then it is open to the court to make 'such provision as it thinks fit'. The approach of [the appellants] was to say if a plaintiff is entitled to an award then that award should be no more than adequate provision for the proper maintenance, support, education or advancement of life of the plaintiff. With respect that puts a gloss on the statute. The discretion in the Act is unfettered. It must be exercised judicially and all relevant factors must be taken into account. But there is no warrant for assuming that the award should be no more than that which will provide adequate provision for a plaintiff - see [61] of the Master's decision.
It appears that the question of what is "adequate" and "proper" is more than a "gloss on the statute" because it really does require the Court to consider the needs of the applicant as well as the size of the estate in determining whether (i) the estate can afford to make "adequate" provision for the applicant even in the face of that provision not being necessarily "proper" in the circumstances; and (ii) having regard to what the community would expect of a deceased that leaves a billion dollar estate.
It is clear that the Master determined it was "proper" for a daughter of a billionaire to be provided for, to the extent of $25M, particularly because the other siblings would not be prejudiced by such an award. By contrast, the Court of Appeal held that Ms Mead's station in life and future prospects could be adequately provided for with an award of $6.1M. Is that "proper" in the circumstances? It is hard to tell from the Court of Appeal's decision because as is the case with all family provision claims, as hard as the Court tries to apply formulaic legal principles in determining these difficult questions, at the end of the day, it can sometimes be a bit of "toss of the coin." What this case further highlights for me is the somewhat subjective nature of the approaches by both Courts notwithstanding their determination to apply set legal principles.
The case is best summarised by Lord Romer in Bosch that "adequate" is concerned with the quantum, whereas "proper" prescribes the standard, of maintenance. The Court of Appeal obviously determined that $6.1M was adequate in Ms Mead's case. Whether or not it was "proper" in a billion dollar estate lends itself to further philosophical debate. It makes our job as advocates more challenging in terms of persuading the Court of these somewhat esoteric questions.
I am sure that Ms Gina Rinehart will be reading this decision with some interest!