Hannaford v Hannaford [2010] NSWSC 911 (19 August 2010)

Last Updated: 20 August 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Hannaford v Hannaford [2010] NSWSC 911


JURISDICTION:
Equity Division

FILE NUMBER(S):
2008/281381

HEARING DATE(S):
10, 11, 12, 13 and 14 May 2010

JUDGMENT DATE:
19 August 2010

PARTIES:
Alan Varley Hannaford (Plaintiff)
Geoffrey Lawrence Hannaford as Executor of the Will of the late Dorothy Broughton Hannaford (Defendant)

JUDGMENT OF:
Bergin CJ in Eq

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
BMJ Toomey QC / G Underwood (Plaintiff)
M Willmott SC / G Van Der Vlag (Defendant)

SOLICITORS:
Johansson Solicitors (Plaintiff)
Galland Elder Lulham (Defendant)


CATCHWORDS:
SUCCESSION - where three adult sons worked a rural property for 25 years in partnership - where partnership dissolved - where intended share for departing partner not achieved - where deceased made no provision for son/departed partner on basis that he had already received his share - whether provision should be made - notional estate - whether prescribed transaction - whether order designating notional estate should be made

LEGISLATION CITED:
Family Provision Act 1982
Succession Act 2006


CASES CITED:
Delaforce v Simpson-Cook [2010] NSWCA 84
Ford v Simes [2009] NSWCA 351
Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425
Schaeffer v Schaeffer (1994) 36 NSWLR 315
Wentworth v Wentworth (Supreme Court of New South Wales, 14 June 1991, unreported)

TEXTS CITED:


DECISION:
Provision to be made.



JUDGMENT:

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


BERGIN CJ in Eq

19 AUGUST 2010

2008/00281381 ALAN VARLEY HANNAFORD V GEOFFREY LAWRENCE HANNAFORD

JUDGMENT

Introduction

1 The late Dorothy Broughton Hannaford (the deceased), her late husband, Raymond Laurence Hannaford (Mr Hannaford), who died in 1982, and their three sons, Alan Varley Hannaford, the plaintiff, Geoffrey Lawrence Hannaford, the defendant, and their younger brother, Barry Broughton Hannaford (Barry), operated a very successful cattle business (the Business) for many years in Braidwood, New South Wales. The Business was conducted as a partnership known as the Hannaford Pastoral Co (the Partnership) on the properties known as Meroo in Braidwood owned by the family company, Hannaford Pastoral Co Pty Limited (the Company).

2 In 1992 a family disagreement led to the break up of the Partnership. Thereafter the deceased, the defendant and Barry operated the Business under a new partnership agreement until the deceased’s death on 18 May 2007. By her Will dated 18 December 2003, Probate of which was granted to the defendant on 29 January 2008, the deceased appointed the defendant as executor of the Will, trustee of her estate and Governing Director of the Company. The deceased made no provision for the plaintiff and left the whole of her estate to the defendant and Barry in equal shares.

3 The plaintiff commenced these proceedings on 30 October 2008. By Amended Summons filed in Court during the trial the plaintiff seeks an order pursuant to s 7 of the Family Provision Act 1982 (the Act) that provision be made for his maintenance and advancement in life out of the estate of the deceased. The Act, as opposed to the Succession Act 2006, as amended, applies to these proceedings because the deceased died before 1 March 2009. The Succession Act applies to claims in relation to estates of testators who died after that date. The plaintiff also seeks declarations that for the purposes of sections 23 to 28 of the Act the notional estate includes: the issued capital in and the assets of the Company; the assets of the Partnership; the issued capital in and the assets of Chay Pty Ltd (Chay); the real property owned by the Company and Chay; and the real property owned jointly by the defendant and Barry.

4 The proceedings were heard on 10, 11, 12, 13 and 14 May 2010 when Mr BMJ Toomey QC, leading Mr G Underwood, of counsel, appeared for the plaintiff, and Mr M Willmott SC leading Mr G Van Der Vlag, of counsel, appeared for the defendant.

The Company

5 Mr Hannaford and the deceased established the Company in 1957 for the purpose of operating the Business. By that stage Mr Hannaford and the deceased had already purchased the property Meroo in Braidwood and between 1957 and 1992 the Company acquired further properties in the Braidwood district: Cow Paddock, Wattle Paddock, Bedervale, Devon Farm, Pine View, Tumella and Inverness. Although the Company’s land holdings comprised all of these properties, they have been referred to collectively as Meroo.

6 The Articles of Association of the Company provide relevantly:

4 It shall be no objection to any agreement which the Company may make in the course of acquiring any property or carrying on its business that any party to such agreement may be Raymond Laurence Hannaford and/or his wife Dorothy Broughton Hannaford or any of their children or that any of them may be governing director managing director director promoter shareholder in or otherwise stand in a fiduciary position to the Company or that there is no independent board to represent and act on behalf of the Company in respect of any such agreement and every member of the Company both present and future shall be deemed to have become such a member and to have joined the Company on this basis and subject to compliance with the provisions of section 129 of the Companies Act 1936 the said Raymond Laurence Hannaford and/or his wife Dorothy Broughton Hannaford or any of their children may as governing director managing director or director as the case may be vote in respect of such an agreement and may in all respects act as such governing director managing director or director in respect of any such agreement and on behalf of the Company and enter into give effect to and carry out any such agreement and any such agreement may be signed or executed as well by the said Raymond Laurence Hannaford and/or his wife Dorothy Broughton Hannaford or any of their children as by any other director or directors and/or secretary.

...

Capital

8 (a) The capital of the Company is £40,000 divided into 40,000 shares of £1 each of which 100 shares numbered 1 to 100 inclusive shall be and are hereinafter called management shares.

(b) The said management shares shall be preference shares and shall confer the right to a fixed cumulative preferential dividend at the rate of five pounds per centum per annum on the capital for the time being paid up thereon but on a winding up of the Company the holder thereof shall not be entitled to receive on payment off on capital any sum in excess of the capital paid up thereon.

(c) Numbers 1 to 50 inclusive of the said management shares shall be allotted to Raymond Laurence Hannaford and during his lifetime shall confer on him the rights and powers of governing director hereinafter set forth and shall also entitle him at any meeting of the members or of directors or in respect of any resolution of the members or of the directors to one vote plus such a number of votes as is equivalent to the number of votes cast or given otherwise than by or on behalf of the said Raymond Laurence Hannaford at any such meeting or in respect of any such resolution.

(d) Numbers 51 to 100 inclusive of the said management shares shall be allotted to Dorothy Broughton Hannford and during her lifetime but only as from the death of the said Raymond Laurence Hannaford shall confer on her the rights and powers of governing director hereinafter set forth and shall also entitle her at any meeting of the members or of the directors or in respect of any resolution of the members or of the directors to one vote plus such a number of votes as is equivalent to the number of votes cast or given otherwise than by or on behalf of the said Dorothy Broughton Hannaford at any such meeting or in respect of any such resolution.

(e) The survivor of the said Raymond Laurence Hannaford and the said Dorothy Broughton Hannaford shall have the right whilst holding at least fifty of the said management shares to appoint by his or her will or any codicil thereto any person to be the governing director of the Company and subject to article 79 hereof any persons so appointed shall hold the office of governing director until he resigns or is removed from office by the Company in general meeting.

...

25 Subject to the provisions of these articles the shares of the Company shall be under the control of the directors who may allot or otherwise dispose of or refuse to allot the same to such persons upon such terms and at such times as they may think fit and may if they shall so think fit allot fully paid-up shares as the consideration or part of the consideration of any transaction made or entered into by the Company.

...

76 The first directors shall be Raymond Laurence Hannaford the governing director as provided by article 8 and Dorothy Broughton Hannaford.

...

GOVERNING DIRECTOR

78 In pursuance of articles 8 and 76 and subject to articles 79 and 96 Raymond Laurence Hannaford shall be the first governing director of the Company and shall hold that office until he dies or resigns or ceases to hold 50 management shares and after his death or resignation or upon the first governing director ceasing to hold 50 management shares Dorothy Broughton Hannaford shall be the next governing director until she dies or resigns or ceases to hold 50 management shares.

79 (1) The governing director for the time being shall have authority to exercise all the powers, authorities and discretions by these articles expressed to be vested in the directors generally and all the other directors for the time being of the Company shall be under his or her control and shall be bound to conform to his directions in respect of any matter relating to the business of the Company.

(2) A governing director shall ipso facto vacate office if at any time by notice to the Company he or she resign the office.

(3) If the said Raymond Laurence Hannaford or Dorothy Broughton Hannaford as governing director shall resign he or she may from time to time appoint any person to be governing director in his or her place and direct and determine what of those hereby vested in him or her shall be the powers authorities and discretions of such person how long he or she shall be entitled to hold office and what shall be his or her remuneration.

(4) Notwithstanding anything herein expressed to the contrary the said Raymond Laurence Hannaford or Dorothy Broughton Hannaford if he or she shall at any time resign the office of governing director may resume such office even thought (sic) the same may be then filled by giving notice in writing of his or her intention so to do to the secretary and immediately upon receipt of such notice any other person holding the office of governing director shall be deemed to have resigned.

7 On Mr Hannaford’s death in 1982 his 50 management shares were transferred to the deceased. The deceased held those shares together with her 50 management shares until her death in 2007 when the 100 management shares were transferred to the defendant. The defendant subsequently transferred 50 of those shares to Barry.

The early years

8 The defendant is the eldest brother born in 1946. The plaintiff was born in 1949 and Barry was born in 1956. Each attended the local convent school and then St Joseph’s College at Hunters Hill. The defendant and Barry attended St Joseph’s College as boarders for the whole of their high school years, whereas the plaintiff only boarded at St Joseph’s College for his final two years of high school. After the plaintiff completed his Leaving Certificate, he attended the Yanco Agricultural College for one year and then returned to Meroo and worked at the direction of Mr Hannaford.

9 The plaintiff married his wife, Kathy, in 1974 when they commenced living on Inverness. Their first daughter was born in 1977 and their second daughter was born in 1979.

10 There is no doubt that the deceased was an extraordinarily good businesswoman. There is also no doubt that none of the brothers had a great deal of financial independence from the Company/Partnership or the deceased. They were not able to write their own cheques until very much later in life. The Company paid for the upkeep and outgoings in relation to the properties on which each of the brothers resided. The deceased also controlled their living expenses for food and clothing. The brothers worked long hours, six to seven days a week with very few, if any, holidays. Between 1966 and 1992, the only holiday the plaintiff had away from Meroo or Inverness was his honeymoon. These long hours and total commitment to the Business of the Partnership by the members of the family was an integral part to the obvious success of the Company.

Partnership Agreement - 1988

11 It is apparent that up to 1988, the Partnership had been operated without a formal Partnership Agreement. This was probably because that up until the time of his death in 1982, Mr Hannaford was the Governing Director of the Company and directed the Business of the Partnership.

12 On 1 July 1988 the Company, the deceased, the plaintiff, the defendant and Barry entered into a formal Partnership Agreement. That Agreement provided that the partners would contribute the initial capital of the Partnership and that the partners were entitled to the net profits and were to bear any losses of the Business in the proportions as to 66 and 2/3% for the Company and 8 and 1/3% for each of the other partners. The Agreement also provided relevantly:

DRAWINGS

9. Any partner may draw such amounts and at such times as the partners shall from time to time determine out of the said business in anticipation of their share of the profits for the current year to be accounted for at the next yearly division of profits but if in any year it appears that the amount so drawn out by any partner exceeds their share of the net profits they shall forthwith refund the excess without interest.

BUSINESS REGULATIONS

10. The said Dorothy Broughton Hannaford shall be the managing partner and the other partners shall be bound to conform to and comply with all orders and directions given by the said managing partner in reference to the conduct of the business of the partnership.

....

DISSOLUTION

14. Any partner may retire from the partnership on giving six months previous notice in writing to the remaining partners or leaving the same at the place of business of the partnership and at the expiration of such period the partnership shall determine accordingly as to the partner giving or leaving such notice ...

...

18. Upon dissolution of the partnership ... a valuation and a general account of the debts, liabilities and transactions of the partnership shall be taken and the assets and property thereof shall with all convenient speed be realised and sold and the debts due to the partnership got in and the proceeds shall be applied in the first place in discharge of the liabilities of the partnership and the expenses of liquidating the same and realising the assets thereof and the next place in payment to each partner or his representatives of any unpaid interest or profits coming to him and of the amount due to him in respect of capital and the surplus (if any) of the assets realised as aforesaid shall be divided between the partners or their representatives in equal shares and the partners or their representatives shall execute such instruments for facilitating and effecting the realisation and division of the assets of the partnership and for their mutual indemnity and release and otherwise as may be requisite or proper PROVIDED HOWEVER that if any partner or their representatives shall satisfy their proportion of any partnership debts chargeable thereon or indemnify the other partners against the same such partner or his representatives may require his or their estate or interest in any lands or any other property instead of being sold.

Sale Agreement – I July 1988

13 On 1 July 1988, the deceased, the plaintiff, the defendant and Barry, as Vendors, and the Company, the deceased, the plaintiff, the defendant and Barry, as Purchasers, entered into a Sale Agreement. That Agreement recited that the parties had agreed to become partners in the business of grazing and that the Purchasers had agreed to buy from the Vendors motor vehicles, station plant, machinery and livestock referred to in the Schedule to the Agreement for $760,107. The share of the purchase price was as identified in the Partnership Agreement, being 66 and 2/3% for the Company and 8 and 1/3% for each of the other partners (cl 1). The purchase price was to be paid “on demand” (cl 2). The livestock listed in the Schedule to the Agreement included: 20 mixed horses; 1 stallion; 21 mixed sheep; and 1877 head of cattle. The Plant listed in the Schedule to the Agreement included: two Volvo sedans; a Falcon utility; a Bedford Truck; two Toyota Landcruisers Tabletops; a Statesman sedan; a front-end loader; a pothole digger; three bikes; a truck with tipping body; a disc seeder; a plough; a cart; a silage grab attachment; a prime mover with trailer; a stock float; a cow lift attachment; a fertiliser spreader; a chainsaw; a generating plant; and various other items of plant and office equipment.

Horse Stud

14 The plaintiff has always had a love of horses. In the 1970s and 1980s the deceased encouraged the plaintiff’s participation in competitive horsemanship. His first participation in competition was in 1975 when he and Barry took part in an endurance race in Braidwood. Barry rode a stallion owned by the Company that was incredibly fit and the plaintiff borrowed a horse from a friend. They won the race by a big margin and as a result they were sent a lot of mares for service by the stallion. Mr Hannaford was so impressed by the results that he decided that the Company would purchase a “good horse”.

15 In 1976 the Company purchased the stallion, Stanton Stud Kidman (SSK). The moneys from the service fees for SSK were paid into the Company. In the 1980s at the plaintiff’s request, the Company funded the building of a shed for the purpose of establishing the Hannaford Horse Stud. The Company sold the stallion’s services, bred from mares and also sold horses. It also bred horses for the purpose of the plaintiff competing in campdrafting competitions. Those competitions combined stockmanship with cattle and horsemanship where competitors cut a beast out of a yard and take it around a fixed course in a closed arena within fixed time limits. In 1988 the plaintiff won the World Championship Campdrafting Competition (the 1988 Championship) and subsequently became a well-recognised horseman, show judge and horse breeder.

16 Although Barry suggested otherwise I am satisfied that the plaintiff probably spent 3% to 5% of his work hours per day in developing the Hannaford Horse Stud. He also spent time away from Meroo in 1988 competing in events for the purpose of qualifying for the 1988 Championship and also spent time at the Championship that was held in Sydney that year.

17 Tension developed between the plaintiff and Barry that related to the time that the plaintiff was spending with the horses. Although this was not discussed between the brothers it appears that such tension developed because the Company was committing funds to the operation of the Horse Stud which Barry resented because he did not have any involvement with the horses and he took the view that he was making a greater contribution to the operation of the Business of the Partnership.

The Break Up

18 In late 1991 or early 1992 the plaintiff made a tentative arrangement with a third party to exchange a number of geldings for a horse trailer. The plaintiff gave evidence that when he informed the deceased of this tentative arrangement she “hit the roof”. A few days later the deceased said to the plaintiff:

We have made the decision that there will be no truck, and we will sell all the horses and you will never compete again.

If we get a truck for you, imagine if Barry wants a boat.

The bottom line is that you will do as I say until I die, because you should know that you own nothing. You only have a $2 share in the Company; that’s all.

19 The deceased informed the plaintiff that if he doubted what she had just told him he could attend upon her solicitor. Subsequently the plaintiff and his wife attended upon the deceased’s solicitor who spoke only briefly and said that he was “not guilty of this sin but what your mother has told you is true. I can tell you nothing else as I am acting for her”.

20 The plaintiff gave evidence that he was shocked to learn that there was nothing in his name and that he had no real ownership of any assets in the family business. He had been informed by his parents, particularly the deceased, that the brothers were all equal shareholders in the family business. There is no issue that the deceased led each of the brothers to believe that they shared equally in the Business of the Partnership. The plaintiff thought deeply about his predicament and said that he was “torn” because he had always been so committed to working Meroo with his brothers and the deceased. A couple of days later the plaintiff informed the deceased that he could not do everything that she wanted, to which the deceased responded “well you can go, and when you go, be sure you leave the keys to the car”.

21 Some weeks later at a meeting at Meroo the deceased, the defendant and Barry advised the plaintiff that he was to have the property Inverness and some cattle.

22 On 6 February 1992 the firm of solicitors, Crossin Power Haslem, wrote to the solicitors for the family, Galland Elder Lulham, referring to their letter of 23 January 1992 to the plaintiff which apparently referred to the Will of the late Mr Hannaford, the Memorandum and Articles of Association of the Company and the Financial Statements of the Company to 30 June 1991. That letter included the following:

On the basis of that advice we are instructed to indicate to you that Mr Allan (sic) Hannaford wishes to accept the offer made by other members of the Hannaford Family subject always to the arrangement being such that the assets to be transferred to him will be received by him in an unencumbered form and without loan obligations back to the Pastoral Company and/or the partnership.

He would like to see all loan accounts in the Company in his name cleared up as part of the exercise.

As discussed with you, we will have to leave that to the family accountant to resolve.

I am also instructed to request you as the family solicitor to prepare the necessary papers for the transfer of the real estate as a matter of urgency.

23 On 21 February 1992 Galland Elder Lulham wrote to the deceased informing her that they had discussed the matter further with Mr Hart (the accountant for the Company and the Partnership) and with Barry regarding the constitution of the new partnership. The letter contained a proposal that the Company would reduce its 66 and 2/3% interest in the Partnership to 50% by transferring 8 and 1/3% each to the deceased and the defendant thus increasing the deceased’s and the defendant’s interest from 8 and 1/3% to 16 and 2/3%; that Barry’s interest would remain at 8 and 1/3%; and the plaintiff would transfer his 8 and 1/3% interest to Barry’s wife Germaine. The letter included the following:

The other steps necessary to remove Alan from the partnership and from the company are as follows (these are not necessarily in order):

1 You are the present holder of 100 management shares in the company and you hold in trust the 10,000 ordinary shares in the company. You transfer 3,333 shares to Geoff, 3,334 shares to Alan and 3,333 shares to Barry. This is done pursuant to the Trust Deed and still leaves you with the 100 management shares.

2 Alan transfers 1,667 shares to Geoff and 1,667 shares to Barry. This then leaves Geoff and Barry holding 5,000 shares each in the company and you holding the 100 management shares.

3 Alan sells his 8 ¹/₃ interest in the partnership to Germaine.

4 The company sells 8 ¹/₃ per cent of the partnership to you and 8 ¹/₃ per cent to Geoff.

5 A new Partnership Agreement in respect of the livestock and plant is prepared. This sets up the new partnership in the shares set out earlier in this letter.

6 The company sells the property “Inverness” to Alan at valuation.

7 The partnership sells to Alan 650 cattle at $42.93 per head and 18 horses at $107.55 per head.

The 1992 Agreements

24 There were five agreements entered into to reflect the arrangements at the time the Partnership was terminated. The first agreement was the Termination of Partnership Agreement dated 9 March 1992 that recited that the partners (the Company, the deceased, the plaintiff, the defendant and Barry) had been carrying on the partnership since 1988 under the name “Hannaford Pastoral Co” and had agreed to dissolve it. Clause 1 provided that the partnership was “hereby dissolved”. Clause 2 noted that the parties agreed to execute such further documents as may be required to carry that agreement into effect.

25 The second agreement, also dated 9 March 1992 was a Sale Agreement between the Company, the deceased, the plaintiff, the defendant and Barry as vendors and the plaintiff as purchaser of livestock and a motor vehicle for the amount of $46,095.30. That agreement provided that the sale included: “16 mixed horses at $107.55 per head; 650 mixed cattle at $42.93 per head; and a 1989 Volvo”.

26 The third agreement, also dated 9 March 1992, was a Deed of Release in which it was noted that the plaintiff was the holder of shares in the Company and that he had retired and had transferred his shares in the Company. The continuing partners agreed to release the plaintiff and indemnify him from all actions, suits, claims and demands of any kind in respect of the continuing partnership and in respect of the debts of the Company. The parties agreed to execute any further documents as required to give effect to that Deed of Release.

27 The fourth agreement was an Agreement for Sale, also dated 9 March 1992 between the Company, the deceased, the plaintiff, the defendant and Barry, as Vendors, and the Company, the deceased, the defendant, Barry and his wife Germaine, as Purchasers, pursuant to which the Purchasers purchased the motor vehicles, station plant, machinery and livestock as listed in the Schedule for $1,176,781.

28 The final agreement was also dated 9 March 1992 and was a Deed of Release that included the following:

1 The retiring partner acknowledges that he has no claim of any kind whatsoever for or in respect of the partnership known as “HANNAFORD PASTORAL CO” and further acknowledges that he has received all moneys and other assets of the partnership due to him. He hereby releases and forever discharges the other partners from and against all actions, suits, claims and demands of any kind whatsoever for or in respect of the partnership.

2 The retiring partner acknowledges that he has no claim of any kind whatsoever for or in respect of HANNAFORD PASTORAL CO PTY LIMITED and further acknowledges that he has received all shares, moneys and other assets of the Company due to him. He hereby releases and forever discharges the Directors and Shareholders of HANNAFORD PASTORAL CO PTY LIMITED from and in respect of all actions, suits, claims and demands whatsoever for or in respect of the company.

3 The retiring partner acknowledges that he has no claim of any kind whatsoever by virtue of the provisions of the Family Provision Act 1982 or any other Act for or in respect of the estate of DOROTHY BROUGHTON HANNAFORD and he hereby covenants with the said DOROTHY BROUGHTON HANNAFORD and with GEOFFREY LAWRENCE HANNAFORD and BARRY BROUGHTON HANNAFORD to enter into a Deed if ever called upon to do so by any or all of the said DOROTHY BROUGHTON HANNAFORD, GEOFFREY LAWRENCE HANNAFORD and BARRY BROUGHTON HANNAFORD pursuant to which Deed he will release and forever quit any claim that he may have against the estate of the said DOROTHY BROUGHTON HANNAFORD and all rights if any exercisable by him in respect of such estate. The parties hereto acknowledge that they have agreed to support any request or application of any of the parties hereto (whether made in the lifetime or after the death of DOROTHY BROUGHTON HANNAFORD) to the Supreme Court of New South Wales for the approval of the Court under Section 31 of the said Act.

...

7 The parties hereto hereby agree to execute such further Deeds and documents as may be required to carry this Deed into full force and effect.

29 No application was ever made to this Court for approval under s 31 of the Act. At the commencement of the trial Mr Willmott advised that neither the defendant as executor or in his own right nor Barry, would require the plaintiff to enter into a Deed whereby he releases his rights to make a claim against the deceased’s estate or for approval of the Court of such a release under s 31 of the Act. However the defendant and Barry gave evidence of their understanding of the plaintiff’s intention not to make such a claim and claimed that they structured their lives accordingly. Consequently the entry into this Deed of Release is relevant to that aspect of the defendant’s case.

After the break up

30 The plaintiff gave evidence that after the break up he was quite “terrified” because he had two young children and no savings. He was 42 and had spent his entire life in the family business without any independence or business and financial training. The deceased had always run the business and he had no commercial acumen in running his own business. The plaintiff referred to Inverness as a “marginal operation” lacking in the “economies of scale” that were available on Meroo. The plaintiff and his wife eventually set up some franchise shops and entered into some property transactions to “try to make ends meet”.

31 The plaintiff gave evidence that he was emotionally and financially devastated by the family break up. He said that he and the deceased had often fought but that he still loved her dearly and felt that she still loved him. Her reaction in relation to his proposal in respect of the horse trailer had stunned and confused him. He thought that any arguments they had were just part of the “rough and tumble of normal family life, and life would just go on”. However he understood that the deceased had decided differently on this occasion and “almost never” initiated contact with him again. He always tried to maintain some form of contact with the deceased but was unable to reach a full reconciliation with her.

32 The plaintiff gave evidence that from 1992 until her death in 2007 he tried to contact the deceased on a regular basis. He made sure to call her on her birthday and mother’s day, however things remained tense until her death. Sometimes when he visited her he took his daughters with him. On other occasions his daughters would visit the deceased alone as the plaintiff and his wife had encouraged them to do so. In the final week of the deceased’s life he called upon her four or five times. It was at this time that the plaintiff observed that the deceased seemed genuinely pleased to see him and he felt that there was some reconciliation.

33 From 1992 until 2009 the plaintiff had believed that it was the deceased who had decided not to allow him to pursue the exchange of the geldings for the horse trailer. However he then read Barry’s affidavit sworn on 31 July 2009 in which the following appeared:

40 I recall that I had a conversation with Mum in late 1991 during which she sought my opinion about Alan getting a horse float during which there was an exchange to the following effect:

Me: “If you buy the horse float, I am going to leave. I’ve had enough with the business spending money on Alan’s activities. Geoff and I are doing the bulk of the work”.

Mum: “Are you going to be the one who breaks this family up?”

Me: “Yes, if that’s what it takes. I’m unwilling to do an unfair portion of the work anymore”.

Mum: “Well we will think about it”.

34 Barry was cross-examined in relation to this matter as follows (tr 243-245):

Q When was the case when you told your mother, as you have sworn in your affidavit, in effect Alan or me?

A When? There was discussion I heard of the horse float, so it was some time after that that mum asked me the question, what do you think about the horse float and I expressed my feelings totally.

...

Q And what did your mother actually say, do you remember?

A I think along the lines what do you think about buying a horse float, along those lines, I couldn’t exactly say what the words were said.

...

Q Did you not at any time ask Alan what it was that he wanted the company to buy?

A I never had a conversation with Alan about the horse float.

Q Why?

A I think because I didn’t want a disruption with Alan anymore if I could get away with it. I had enough fights with Alan.

Q You didn’t want a disruption with him?

A At that time, that’s why I didn’t go to him, I didn’t want to fight with Alan.

Q But in his absence, not wanting a disruption in his absence you said to your mother if you buy the horse float I am going to leave?

A I think I was showing my frustrations, sir, in the money that was being spent and the time and effort that was going into the horses.

Q Wouldn’t you agree with me that what you were doing was creating the devil’s own disruption between you and Alan when you claimed to be, you claim you wouldn’t talk to him because you were afraid of disruption?

A I was showing my frustration of spending more money to the horses and I just didn’t want to go there.

Q “If you buy the horse float I am going to leave”, had you before you said that to your mother, accepting what you say that you were frustrated, had you considered the possible results of you saying that?

A Probably not as I think it just, it probably came out a bit too loud and fast but, probably not.

Q If you had thought it through you would realise, would you not, that you were threatening the unity of the family?

A It is possible sir, yes.

Q Indeed, your mother put it to you straight, did she? She said to you, are you going to be the one who breaks this family up, your --

A She did.

Disentitling conduct

35 The defendant submitted that the plaintiff’s conduct and lack of contact with the deceased after the break up of the Partnership amounts to disentitling conduct. In support of this submission the defendant relied on Ford v Simes [2009] NSWCA 351 at [71]. That case is distinguishable from this. The son of the deceased in that case had visited the deceased only once during a lengthy estrangement and on that one occasion was abusive to the deceased. In this case the plaintiff maintained contact with the deceased from time to time and ensured that his daughters went to see her. I do not accept that the plaintiff’s conduct amounts to disentitling conduct. The defendant also relied upon the absence of contact between the plaintiff and the deceased to submit that if any provision is to be made in the plaintiff’s favour, it should be modest.

Valuation of Properties

36 In February 1992 there was a valuation of the properties by Norman Leonard Whitfield & Associates. Mr Whitfield valued Meroo, Cow Paddock, Tumella, Wattle Paddock, Devon Farm, Pine View and Bedervale together at $4.6 million. That valuation included the following:

If these seven farms, which have separate titles and could operate as individual properties, were valued separately the overall value of the total holding would be considerably greater. These smaller areas of rich granite soil together with their location, being well watered and having the amenities of electricity and telephone either across the farm or handy to it would attract a ready market from both the rural sector and the Pitt Street farmer.

37 Mr Whitfield also valued Inverness on which there are four separate lots. Each block was valued separately at: $725,000; $500,000; $200,000; and $480,000 with a total valuation of $1,905,000.

38 Meroo has a total area of 3,922 acres and at the valuation of $4.6 million, a per acre price would be $1,172. Inverness is 1,072 acres and at the valuation of $1,905,000, a per acre figure is $1,777. The plaintiff relied upon this calculation to demonstrate the alleged flaw in Mr Whitfield’s valuation because it is probable that the quality of the land on Meroo is better than the quality of the Inverness land.

39 Douglas Walker & Associates valued the properties on 2 November 2009. Those valuations are as follows: Meroo $900,000; Cow Paddock $850,000; Tumella $1.75 million; Wattle Paddock $2 million; Bedervale $1.28 million; Devon Farm $560,000; and Pine View $475,000. By this time the defendant and Barry had formed Chay, which purchased a further property Burgoon that Mr Walker valued at $1.47 million. The total value of the properties held by the Company and Chay at the date of the valuations is $9,285,000. At the same time, Mr Walker valued Inverness at $1,725,000, which is $180,000 less than Mr Whitfield’s 1992 valuation.

Plaintiff’s present position

40 The plaintiff is 61 years of age and suffers from constitutional, age-related and post-traumatic osteoarthrosis involving both hips and both knees. The prognosis for the multiple joint disorders is for progressive deterioration with a need for joint replacement arthroplasty in the medium to long term, estimated to be at a minimum of three years and a maximum of 10 years. It is apparent that the plaintiff is not fit for heavy work and his capacity for any physical work will be affected until he has his surgery.

41 The assets of the plaintiff and his wife include Inverness, valued at $1,725,000 by Douglas Walker; and a property in Braidwood valued at $336,662. It is reasonable to value the plaintiff’s cattle at $370,500 and his horses at $650,000. There are also valuations of structural improvements at $21,190; plant and equipment at $221,917; and motor vehicles at $53,564. The plaintiff has also valued his stock and plant and equipment in relation to the operation of the shop at Batemans Bay in the company, Gillford Corporate Investments Pty Limited, at $177,062 and $39,367 respectively. The total value of these assets is $3,595,262.

42 The plaintiff’s liabilities are set out in detail and were not really the subject of challenge (Ex D). They include an overdraft with the ANZ of $46,943; a loan with the ANZ of $237,591; a commercial bill with the ANZ of $670,000; a Landmark overdraft of $473,309; and a Landmark Term Loan of $100,000. Those liabilities amount to $1,893,396. On these calculations the plaintiff’s net assets amount to $1,701,866.

43 The plaintiff’s annual income is $60,892 and his wife’s annual income is $67,287. The plaintiff’s personal expenses in the accounts of the Partnership “AV and KE Hannaford” for the year ending 30 June 2009 include: $1,675 for electricity and gas; $128,598 for interest payments; $23,244 for motor vehicle expenses; $8,227 for rates; and $988 for telephone expenses, amounting to $185,976. These expenses, which do not take account of other daily living, educational and clothing requirements, are therefore $57,797 greater than the combined annual income of the plaintiff and his wife.

44 The Web Page for the Hannaford Stud reads as follows:

HANNAFORD STUD is situated in the beautiful granite country of the Southern Tablelands. Out quaint, historical town of Braidwood is nestled in the mountains halfway between Canberra and Batemans Bay. Our district is renowned for breeding quality horses. Thoroughbred studs such as “Strathallan Stud” and “Charleston Stud” have produced the best horseflesh in the country. Dual Melbourne Cup winner, the famous “Archer” called Braidwood home.

Hannaford Stud is a family owned and operated Horse Stud with a reputation of offering the very best in genetics backed by experience of a very professional team. Hannaford Stud commenced breeding Campdraft Performance Horses in 1974. The Foundation sire was Stanton Stud Kidman. This stallion proved to be an outstanding sire and blood still lingers in our Stud. Hannaford Stud Horses have been the foundation horses for many successful studs throughout Australia. As an individual, Kidman was Runner-Up ABCRA Course of the Year in 1985 and ran off for the Cut-Out in the Warwick Gold Cup in 1985. He was a great sire of brood mares, one of his daughters being the mother of Dr Jeckyl.

Most of the horses that Hannaford Stud breeds are eligible for dual registration with ASHA and AQHA.

Performance and conformation together with trainable temperament are of paramount importance in the selection breeding stock of our Stud. Added to this, we have the bonus of a variety of colours such as, black, bays, greys, palominos, chestnuts and buckskins. These colours are usually in the new foal crops each year. Hannaford Stud horses are not only bred for Campdrafting and Cutting but have already excelled in other disciplines, such as Polocrosse, Polo, Led Classes, Stock Horse Events and Eventing.

The Hannaford Stud complex is very comprehensive, efficient, practical and safe for both horses and handlers.

In our endeavours for perfection, we have sort (sic) out the best bloodlines both in Australia and the USA. It is the combination of these genetics that we believe we will cement our place in the horse industry as innovators and leaders.

Mission Statement

Hannaford Stud is committed to breeding the “best of the best” quality brood mares and stallions that unite superior geno and phenotypes to enhance the performance horse industry and further equine standards while achieving the highest level of customer satisfaction. Hannaford Stud is dedicated to building long term relationships and inspire excellence in the equine industry.

Our Goals

We as a team are dependable and are here for the long term. We are committed not only to breed with proven genetics but search outside the square for the allusive (sic) gene to make us unique.

45 The plaintiff was cross-examined about this Web page and agreed that the statements within it apply “as at today” (tr 102). He also agreed that he intends to maintain this enterprise for as long as possible and he gave the following evidence in cross-examination (tr 102-103):

Q. And I take it that you see, for that reason, that the horse facilities that you offer will remain a viable operation?

A. Yes.

Q. And that likewise with the cattle, that will remain, subject to drought conditions obviously?

A. Yes.

Q. Will remain a viable operation in the future?

A. Yeah.

Q. Something which you can manage and develop?

A. On and off Inverness, yes.

The Deceased’s Estate

46 The Inventory of Property attached to the Grant of Probate records the assets of the estate of the deceased for probate purposes at $70,428.57. Further assets have been identified since the date of the Grant and the defendant claims that the estate comprises: (1) moneys in a Westpac Bank account $19,980.58; (2) moneys in a Bendigo Bank account $12,168.09; (3) Woolworth shares $37,955.90; (4) a tax refund of $4,599.98; (5) a debt owed to the deceased by the Company of $50,590.25; and (6) 100 shares in the Company, valued on the defendant’s case at $324.

Expert Opinion

47 On 6 October 2009 the solicitors for the defendant wrote to the accounting firm WHK Horwath Sydney Pty Limited (WHK) seeking preliminary oral advice in relation to certain matters including the following:

5. The extent, if any, to which the Deceased was capable of conferring “a valuable benefit” on the Company’s shareholders (beneficiaries under the Deceased’s Will) including but not limited to the capacity to enhance the value of any existing members’ shares/entitlements as at the date of her death or at any time within the 3 year period prior to her death, by reason of any act or omission on her part as Governing Director of the Company or otherwise, including but not limited to:

a. The allotment of any un-issued share(s) of any class to herself or any other person(s); or

b. The omission to allot any unused share(s) of any class to herself or any other person(s).

48 On 1 April 2010 the solicitors for the defendant wrote to a principal of WHK, Ms Jenny Wheatley, advising that the Company had been placed into liquidation by its members on 22 June 2009. Ms Wheatley provided an expert report “in respect of certain financial matters” relating to the deceased’s estate under cover of a letter dated 30 April 2010. Ms Wheatley referred to the letter of 6 October 2009 as her letter of instructions and in the Executive Summary reported as follows:

d. DH [the deceased] held 100 Shares [management shares] in Hannaford and by virtue of this holding, also held the right to act as the Governing Director of the Company. This gave DH control of Hannaford including the ability to override decisions of the Board of Directors and the Shareholders of the Company.

e. The methodology utilised by me to value the Shares in Hannaford is dependent upon the provisions of M & A of Hannaford, particularly Article 25, which prima facie allows the Governing Director of Hannaford to issue the un-issued shares of the Company to himself or herself or to any other person at par value at any time.

f. If Article 25 is read as to allow DH to derive or confer “a valuable benefit” on herself or the Company’s shareholders, there will be a special value attributable to the Shares.

g. If Article 25 is read to operate subject to Part 2D of the Corporations Act 2001 (Cth) (“the Act”), fiduciary obligations in my opinion that would prevent DH from utilising her powers as Governing Director to confer an inequitable benefit to herself or other shareholders and no special value would exist.

h. In my opinion, the M & A of Hannaford operates such that neither the rights conferred by the Shares nor the powers conferred on a Governing Director of Hannaford may be exercised so as to benefit some of the shareholders or the Governing Director at the expense of the other shareholders.

i. In my opinion while being the holder of the Shares entitles DH to the position of Governing Director of Hannaford, there is no special value attributable to the Shares, as the Governing Director must act in accordance with the fiduciary duties imposed by the Act.

j. In accordance with my instructions and these comments I have valued the shares held on 18 May 2007 by DH in Hannaford on two bases:

Fair market value assuming Hannaford is a going concern; and

Fair market value assuming the winding up of Hannaford.

k. In my opinion the fair market value of the Shares on a going concern basis at 18 May 2007 is $672.

l. In my opinion the fair market value of the Shares on a wind-up basis at 18 May 2007 is $700.

m. I have also prepared an alternative opinion in the event that the Court reads Article 25 of Hannaford as allowing DH to issue herself unpaid shares of the Company without infringing her fiduciary duties as a Director.

n. If DH is able to confer “a valuable benefit” to herself or other shareholders of the Company, special value would be attributable to the Shares.

o. The valuation of the Shares in these circumstances would be based upon the value of the total Shares that DH could have issued herself as a percentage of the total value of the Company at the date of death.

49 Ms Wheatley’s alternative opinion required the consideration of the number of un-issued shares of the Company as a proportion of total shares available to be issued and the fair market value of the Company immediately prior to the death of the deceased. The total share capital of the Company consisted of 40,000 shares at £1.00 each. The issued shares of the Company at the date of the deceased’s death consisted of 10,000 Ordinary Shares, 100 management shares and 3 Redeemable Preference Shares. That equated to 10,103 shares on issue at the date of death with the un-issued capital of the Company being 29,897 of a possible 40,000 shares or 74.7%.

50 Ms Wheatley’s opinion was that the issue of the 29,897 shares would increase the Net Tangible Assets of the Company by $59,794. Ms Wheatley expressed the view that a pastoral company would not attract a commercial goodwill value in excess of its Net Tangible Assets. The Net Tangible Assets methodology estimates the market value of the Company’s shares based on the realisable value of its identifiable net assets. The net assets method is based on the value of the business less certain liabilities, at book values, adjusted to market values. Ms Wheatley formed the view that the actual book value of the Company at 18 May 2007 based upon the Net Tangible Assets as at 30 June 2007 was $4,142,498. Ms Wheatley also reported that she had not been provided with sufficient information to adjust the book value of the assets held by the Company to market value so as to determine the fair market value at that date. It is clear that the assets of the Company were valued “at cost” with Meroo being valued at $364,814. Ms Wheatley’s conclusions included the following:

161. In my opinion the market value of the Shares at the date of the death of DH is $672.

162. Assuming a theoretical winding up of Hannaford had occurred on the date of death of DH, in my opinion the value of the Shares was $700.

163. In the alternative, in my opinion, if my interpretation of Article 25 is not accepted, the value of the shares that DH could have issued herself is prima facie equivalent to 74.7% of the total value of the Company at the date of death.

164. I am unable to assess the fair market value of the Company at 30 June 2007. Assuming that the market value is equivalent to the book value plus the additional issued capital at 30 June 2007 the shares DH could have issued have a value of $3,140,898.

51 It would appear that these opinions are somewhat academic because the defendant and Barry have apparently transferred all the assets out of the Company to themselves.

Liquidation of the Company

52 There was no explanation given by either the defendant or Barry as to why a liquidator was appointed to the Company on 22 June 2009, nor was there any cross-examination of them about their motivation for placing the Company into liquidation during litigation in which the plaintiff was seeking to have the capital and assets of the Company declared as notional estate.

53 It was during the cross-examination of the defendant about his assets as disclosed in his affidavit sworn on 29 July 2009 that he gave what presented as a rather bland explanation that he and Barry had: “moved all of our land out of the Company” (tr 167); and “pulled the land out” of the Company (tr 168). This explanation was given in support of a claim that there was a debt of approximately $2 million apparently attributable to the tax that was incurred in respect of these transactions. The defendant also explained that when the Company was wound up the “cattle went into joint ownership” of himself and Barry (tr 223).

The Cattle

54 A great deal of time was spent during the trial in attempting to ascertain the number of cattle presently on Meroo or on agistment. The defendant referred to this number as a “moving target” (tr 163; 172; and 177). The financial records of the Company up to 30 June 2009 recorded the following numbers of cattle owned by the Company: 4,155 in 2005; 4,156 in 2006; 5,059 in 2007; 6,199 in 2008 and 5,908 in 2009. The defendant gave evidence that he and Barry used a “card system” to count cattle every six months (tr 160-161) and claimed that they knew “how many are in each paddock” and that they “write them all down on a card” as at 1 January and 1 July as a head count for the accountants (tr 160). The defendant claimed that at the date of the trial the number of cattle owned by himself and his brother was 6,395 (tr 162). In cross-examination the defendant said that there were 1600 cattle on Meroo and “about six and a half the lot” (tr 183). This figure of 6,500 took into account the additional cattle off Meroo on agistment.

55 The defendant’s “card system” (Ex 7) suggests that the number of cattle (cows, calves and yearlings) as at 1 January 2010 approximates 6,187, although the defendant was cross-examined on the basis that Exhibit 7 recorded 7,082 cattle (tr 269-270). The defendant gave evidence that since January 2010 at least 200 head of cattle have been sold. It seems to me, notwithstanding the defendant’s evidence that the number is a “moving target”, that it is probable that the number of cattle presently owned by the defendant and Barry is 6,500.

56 In the Notes to the Financial statements for the year ending 30 June 2009 the average market values of the livestock are listed as: $525 in 2003; $606 in 2004; $663 in 2005; $690 in 2006; $642 in 2007; and $651 in 2008. Assuming no increase in the market value from 2008 to the present, and reducing the number of cattle by 2,500 to account for the number of calves, the value of the remaining 4000 cattle owned by the defendant and Barry is $2,604,000.

The two steps

57 The parties have approached this application in the conventional way which requires the Court to carry out a two stage enquiry: first, to decide whether any provision made by the deceased either during her lifetime or out of her estate was adequate for the plaintiff’s maintenance, education and advancement in life; and second, whether any provision should be made out of the deceased’s estate or notional estate: Singer v Berghouse [1994] HCA 40; (1994) 181 CLR 201 at 208-209 per Mason CJ, Deane and McHugh JJ.

58 Section 9(2) of the Act prohibits the Court from making an order under s 7 of the Act unless it is satisfied that the provision (if any) made in favour of the plaintiff by the deceased either during her lifetime or out of her estate is, at the time of the determination of the matter, inadequate for the proper maintenance, education and advancement in life of the plaintiff.

Provision made for the plaintiff during the deceased’s lifetime

59 The defendant claims that in 1992 the plaintiff was provided with a substantial rural property, Inverness, together with a substantial horse breeding business, 650 head of cattle, 18 horses, a Volvo motor vehicle, horse equipment and the forgiveness of a debt in the amount of $247,000.

60 The plaintiff claimed that he did not receive 650 head of cattle at the time the Partnership was terminated. In both his affidavit and his evidence in chief the plaintiff claimed that he received 240 cows with calves on them which made up “double that number” (tr 47). Accordingly the plaintiff claimed that he received 480 cattle. However under cross-examination the plaintiff said that he recalled “receiving around about 300 odd cows with calves on them” (tr 83). Applying the same approach that the plaintiff adopted in his evidence in chief would mean that the plaintiff received 600 head of cattle. The defendant gave evidence that the plaintiff received 650 cattle at the time of the termination of the Partnership (tr 206-207). His recollection was that there were 280 cows and “two drops of calves” adding up to “around about 650 head” (tr 207). The Sale Agreement of 9 March 1992 records that the sale to the plaintiff included 650 head of cattle at $42.93 per head. On balance I am satisfied that the plaintiff received 650 head of cattle at the time of the termination of the Partnership.

61 Although the defendant claimed that the plaintiff was “pardoned” a debt of $247,000 at the time of the termination of the Partnership, the evidence does not establish any basis for such claim. None of the Agreements of 9 March 1992 make any express mention of such a debt. The defendant suggested that such debt might have been “drawings” by the plaintiff out of the Company for his children’s education expenses (tr 199; 204). There is no debt owed by the plaintiff recorded in the Company’s accounts for the year ended 30 June 1992 nor in the previous year. However the accounts do record a debt owed by the Company to the plaintiff for $96,442.55. The defendant ultimately accepted that he had only “assumed” that the “debt” of $247,000, or “part” of it, was for education costs (tr 217). The plaintiff’s elder daughter was born in 1977 and his younger daughter was born in 1979. Thus in 1992 the elder daughter was 15 years of age and the younger daughter was 13 years of age. There is no evidence in relation to which schools the plaintiff’s daughters attended. In any event there is no evidence that this amount related to educational expenses. The defendant did not call any evidence to justify the claim that the plaintiff was forgiven a debt of $247,000 on the termination of the Partnership.

62 Mr Willmott submitted that the plaintiff is not entitled to expect “equality” with his siblings from the deceased’s estate. That does not seem to me to be a fair reflection of the plaintiff’s claim in these proceedings. Rather the plaintiff submitted that it is necessary to review the provision made for him during the deceased’s lifetime in determining whether there was adequate and proper provision made for the plaintiff by the deceased in her Will. The defendant gave evidence that the deceased informed him that she had not made any provision for the plaintiff in her Will because the plaintiff had already taken his “share” at the time that he left the Partnership.

63 The plaintiff’s “share” of the Partnership at that time was 8 and 1/3% of the Partnership as recorded in the Partnership Agreement of 1 July 1988. The plaintiff’s “share” in the Company was 3334 shares, or one third, of the 10,000 shares held on trust by the deceased. Having regard to these matters and the letter from Galland Elder Lulham to the deceased dated 21 February 1992, I am satisfied that the intention was to provide the plaintiff with a “share” equivalent to one third of the value of the land holdings of the Company and 8 and 1/3% of the assets of the Partnership at that time.

64 The valuations of Meroo and Inverness at the time of the Partnership termination were based on two different methodologies. Meroo was valued as a whole rather than as individual properties. Inverness was valued on individual lots. The valuer acknowledged that the value of Meroo would be significantly greater if it had been valued on the same basis that Inverness was valued. As a corollary, the value of Inverness would be significantly less if valued on the same basis that Meroo was valued. This is borne out by the unsuccessful attempt to sell Inverness at $1.6 million in 1993 and also the valuation 16 years later by Mr Walker at $1.725 million.

65 The plaintiff gave evidence that from his discussions with the real estate agent engaged to market Inverness in 1993 it was probably worth between $1.1 million and $1.3 million. There was no expert evidence as to Meroo’s value if it were valued on the same basis upon which Inverness was valued. It was important to determine the comparative values of the properties so that an appropriate “share” could be distributed to the plaintiff. Therefore it was important to value the properties using the same methodology. The valuations that were done in 1992 resulted in a comparative depression of the value of Meroo and an inflation of the valuation of Inverness.

66 I do not accept that at the time of the termination of the Partnership it was reasonable to value Inverness at $1.9 million and Meroo at $4.6 million. I am satisfied that it is appropriate to value Inverness at $1.2 million in 1992. If the values of $4.6 million and $1.2 million are combined, the total value of the land holdings of the Company at the time of the termination of the Partnership was $5.8 million. A one third “share” would have been $1.93 million. Accordingly the plaintiff received $730,000 less in land value than a third share in the assets of the Company. The plaintiff was also required to pay the stamp duty in the amount of $107,000. However I do not intend to take that figure into account because it seems to me that the plaintiff should be liable for the stamp duty for the transfer of Inverness, just as the defendant and Barry are responsible for the tax incurred at the time the land was ”taken out of the company”.

67 The livestock, plant and equipment of the Partnership were valued at $760,107 for the purposes of the Sale Agreement of 1 July 1988. They were valued in the Sale Agreement dated 9 March 1992 at $1,176,781. The livestock plant and equipment that the plaintiff received on the termination of the Partnership was valued in the Sale Agreement dated 9 March 1992 at $46,095. This represented 3.9% of the assets of the Partnership. The equivalent of 8 and 1/3% would have been assets to the value of $98,065. Accordingly the plaintiff received assets that were $51,970 less in value than was intended to be conveyed to him.

68 The financial statements of the Company for the year ending 30 June 1992 (Ex B) recorded a debt to the plaintiff for a loan of $96,442.55. There is nothing in those financial statements describing the nature of that loan, however it probably relates to the plaintiff’s “accumulated wages” (tr 199). There is nothing in the financial statements to suggest that there was any debt owed by the plaintiff to the Company in the amount of $247,000 or at all. The 1991 financial statements of the company record $5,000 for that and the previous year for superannuation for the plaintiff. The 1992 financial statements do not include any amount for superannuation for the plaintiff for that year, although they do record $5,000 for superannuation each for the defendant and Barry.

69 There is a mortgage recorded in the 1992 financial statements as a non-current liability in the amount of $230,000 that appears to relate to the property Tumella (tr 234). Even if this amount were taken into account in working out the plaintiff’s “share” of the Company/Partnership assets, he would only have been liable for one third of that figure, $76,666. Taking that figure into account and adjusting it against the $247,000 results in an amount of $170,334.

70 I am satisfied that at the time of the termination of the Partnership the plaintiff received less than the “share” intended for him by the deceased. He received $730,000 less in land value. He was entitled to the benefit of the amounts of $170,334 and $96,442 or assets to those values and an amount of $51,970 or assets to that value to better reflect his share of the livestock plant and equipment. I am satisfied that the assets that the plaintiff received were $1,048,746 ($730,000 plus $170,334 plus $96,442 plus $51,970) less in value than the “share” intended for him by the deceased at the time of the termination of the Partnership. However this amount needs to be considered in light of the fact that the plaintiff was able to continue the business of the Hannaford Horse Stud in his own right. There is no evidence of the value of the Horse Stud but it is clear that the plaintiff and his family have built it up to a point where, as the plaintiff admitted in cross-examination, it is a “viable operation”.

71 As the plaintiff did not receive the intended “share” at the time of the termination of the Partnership the deceased was under a misapprehension at the time she made her Will. I am satisfied that if the deceased had understood at the time she made her Will, that the plaintiff received less than his “share” at the time of the termination of the Partnership, she would have made provision for him in recognition that the did not receive that share. This conclusion is supported by the previous wills made by the deceased in which provision was made for her three sons to share equally in her estate. It was only in 1992 that this provision changed.

Provision for the plaintiff out of estate

72 There was no provision for the plaintiff out of the deceased’s estate. The deceased appointed the defendant as the Governing Director of the Company on her death in the knowledge that she had not issued any further shares in the Company and in the knowledge that the defendant and Barry were equal shareholders of the Company.

73 The fact that the deceased was under a misapprehension at the time that she made her Will does not automatically result in a finding that the provision was inadequate for the proper maintenance, education and advancement in life of the plaintiff. However it is clear that the deceased intended that the plaintiff’s proper maintenance, education and advancement would be catered for in the distribution in 1992.

74 In Delaforce v Simpson-Cook [2010] NSWCA 84 Handley AJA, with whom Allsop P and Giles JA agreed, said that with “net assets of $2.5 million” the applicant in that case had no need for provision for her maintenance, education or advancement in life”: at [98]. Although qualifying this statement by saying that if the applicant “did have such a need the order did not address it”, it might appear that the Court was expressing the view that if one has net assets of $2.5 million there is no demonstrable need for provision under the Act. I do not read the judgment to preclude an order being made under the Act in all cases in which there may be net assets of $2.5 million. Much will depend upon the facts of each case including the financial burdens that may be placed upon an applicant in the future by reason, for example, of an expected inability to work and an absence of any superannuation benefits or a fund to assist in supporting the applicant and his or her family in the future. Circumstances may vary dramatically from case to case. For instance, in Delaforce the property in question was in the inner west of Sydney and not used for the generation of income. In the present case, Inverness is a rural property used to generate income and exposed to the vagaries of the weather including severe drought.

75 As outlined earlier, the plaintiff’s net assets amount to $1,701,866. However his capacity to service the loans will depend in part upon his capacity to continue working. That is at some risk having regard to the unchallenged medical evidence in relation to his capacity to work. Although the plaintiff is not presently in a precarious financial position, his capacity to develop his property into a more viable operation undoubtedly depends upon a capacity to borrow and purchase additional land. In commenting upon how the plaintiff could expand his operations in this regard the defendant gave evidence that he would have to either borrow the money to buy land or agist cattle (tr 206). The cost of agistment itself is very high. For instance in the year ending 30 June 2009 the Company recorded income from “Cattle Trading” at $1,605,795 with an agistment expense of $581,657. With expenses at $57,797 over income, the plaintiff’s present position is that to expand the business he would have to apply for further borrowings and to make ends meet he would have to sell some cattle and/or horses.

76 In those circumstances although the net assets may appear high, as was the case in Delaforce v Simpson-Cook, the relative position of the plaintiff and the special circumstances of this case in relation to the testator’s misapprehension, satisfies me that the provision made for the plaintiff was inadequate for his proper maintenance, education and advancement in life. Accordingly I am satisfied that an order for provision should be made in the plaintiff’s favour.

The defendant’s financial position

77 As I have said above the defendant gave evidence that he and Barry have moved the land out of the Company. No evidence has been given by either the defendant or Barry of the way in which those properties were either split up or registered in joint names. The property searches that are in evidence all pre-date the liquidation of the Company and the transfer of the properties to the defendant and/or Barry. It would seem from the evidence given by the defendant that the properties are held in joint names save for Burgoon which is held in the name of Chay.

78 The defendant valued his interest in Meroo at $3.162 million and with various other superannuation and cash components and cattle, valued his total assets at $5,498,896. Part of that valuation included an interest in the Partnership net of debt at $571,620. That figure was not broken down but it is clear that when his affidavit was sworn, 1 April 2010, the Company had already been wound up and according to the defendant’s evidence the cattle had been transferred into his name and Barry’s. However the defendant claimed in his affidavit that he only owned 68 head of cattle and valued them at $900 per head at $61,200. It is quite clear that the number of cattle was at least 6,500 and the defendant would have an interest in half that number, 3,250. Reducing that figure to account for calves to 2,250 and valuing them at $900 per head as contained in the defendant’s affidavit reaches a figure of $2,025,000. Although the plaintiff utilised the $900 figure in his affidavit I think a more realistic figure on the evidence would be $650 per head giving a figure $1,462,500. I am satisfied that the defendant’s evidence in relation to his assets, particularly the cattle, is undervalued. In any event taking into account his wife’s assets at $1,023,887, less the margin loan on her share portfolio for $67,600, the net assets of the defendant and his wife are $6,455,283.

79 Although there is no documentary material in relation to the transfer of the properties out the Company’s name, the defendant claimed that a debt of $2 million was incurred in relation to these transactions. Taking into account a half share of that liability would reduce the defendant and his wife’s net assets to $5,455,283.

Barry’s financial position

80 Barry gave evidence of net assets of $4,291,171. Together with his wife’s assets of $232,851, the combined net assets are $4,524,022. Once again the cattle are undervalued with Barry claiming to own only 68 head of cattle valued at $900 per head at $61,200 and an interest in the Partnership at $571,062. Taking into account a half share of the claimed $2 million debt in relation to the transfer of the properties out of the Company’s name would reduce the combined net assets to $3,524,022.

Notional Estate

81 The Act provides relevantly as follows:

22 Prescribed transactions

(1) A person shall be deemed to enter into a prescribed transaction if:

(a) on or after the appointed day the person does, directly or indirectly, or omits to do, any act, as a result of which:

(i) property becomes held by another person (whether or not as trustee), or

(ii) property becomes subject to a trust,

whether or not the property becomes in either case so held immediately, and

(b) full valuable consideration in money or money’s worth for the firstmentioned person’s doing, or omitting to do, that act is not given.

(2) Except as provided in subsections (5) and (6), a prescribed transaction referred to in subsection (1) shall, for the purposes of this Act, be deemed to take effect at the time property becomes held by a person or subject to a trust as referred to in subsection (1) (a).

...

(4) In particular and without limiting the generality of subsection (1), a person shall, for the purposes of subsection (1) (a), be deemed to do, or omit to do, an act, as a result of which property becomes held by another person or subject to a trust if:

(a) the person is entitled ... to exercise a power to appoint, or dispose of, property which is not in the person’s estate but the power is not exercised before the person ceases (by reason of death or the occurrence of any other event) to be so entitled and, as a result of the omission to exercise the power and of the person’s death or the occurrence of the other event:

(i) the property becomes held by another person (whether or not as trustee) or subject to a trust (whether or not the property becomes in either case so held immediately),

...

(5) Except as provided in subsection (6), a prescribed transaction involving the doing of, or omitting to do, an act as referred to in subsection (4) (paragraph (f) excepted) shall be deemed to be entered into immediately before, and to take effect on, the death or the occurrence of the other event referred to in that subsection in relation to that act or omission.

...

23 Notional estate—prescribed transactions

On an application in relation to a deceased person made by or on behalf of an eligible person, if the Court is satisfied:

(a) that an order for provision ought to be made on the application, and

(b) that, at any time before death, the deceased person entered into a prescribed transaction:

...

(iii) which took effect or is to take effect on or after the death of the deceased person,

the Court may, subject to sections 26, 27 and 28, make an order designating as notional estate of the deceased person such property as it may specify, being property which is held by, or on trust for the disponee or, where there is more than one disponee, any of the disponees, whether or not that property was the subject of the prescribed transaction.

...

27 Designation of property as notional estate—matters to be considered

(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.

28 Designation of property as notional estate—powers and restrictions

(1) On an application in relation to a deceased person for an order for provision in favour of an eligible person, the Court shall not make an order designating property as notional estate of the deceased person unless the deceased person left no estate or unless it is satisfied:

(a) that the estate of the deceased person is insufficient to allow the making of provision that, in its opinion, should be made, or

(b) that, by reason of the existence of other eligible persons or the existence of special circumstances, provision should not be made wholly out of the estate.

(2) On an application in relation to a deceased person, the Court shall not make an order designating as notional estate of a deceased person property in excess of that necessary to allow the making of provision that, in its opinion, should be made.

(3) The exercise by the Court of its power under section 23, 24 or 25 to make an order designating as notional estate of a deceased person property held by, or on trust for, a person does not limit or restrict any further exercise by the Court of that power.

(4) Where, as a result of a prescribed transaction or a distribution made from the estate of a deceased person, property becomes held by a person as a trustee only, the Court shall not make an order under section 23, 24 or 25 by reason of the prescribed transaction or distribution in respect of any property (other than the trust property) held by, or on trust for, the person.

82 The meaning of the term “property” in these sections is extremely broad and includes “any valuable benefit”: s 6.

Was there a prescribed transaction?

83 The plaintiff submitted that the prescribed transaction under s 22(1)(a) of the Act was either: (1) the omission by the deceased to allot the un-issued capital of 29,100 ordinary shares and 897 redeemable preference shares to herself prior to her death; or (2) the omission to allot 29,100 ordinary shares to herself pursuant to Article 95(b) for services rendered as a director and Governing Director of the Company for 50 years. The plaintiff also submitted that a further prescribed transaction under s 22(4)(a)(i) of the Act was the deceased’s failure to exercise the power to allot shares to herself pursuant to the Articles prior to her death. Although the plaintiff’s submission in this regard was restricted to the deceased issuing shares to herself, I am of the view that the prospect of the deceased issuing shares to a person other than herself, including either the defendant or Barry or some other person, is also relevant.

84 The deceased had the power as Governing Director to allot the 29,897 un-issued shares in the Company to any person including herself. Notwithstanding that power such right was fettered by her fiduciary obligation as a director to use that power in good faith for the benefit of the Company as a whole and not for her personal benefit: Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425 at 445.

85 There was a great deal of debate as to whether the deceased could have issued the shares to herself prior to her death. The defendant submitted that it would not have been in the best interests of the Company and it would have been inconsistent with the deceased’s fiduciary obligations to the Company to do so. The plaintiff submitted that the issuing of shares to the deceased would not have been inconsistent with the interests of the Company as a whole. Rather it would have been appropriate for the Company to recognise its obligations and to recompense the deceased for her services that she had provided to the Company for over fifty years, more than twenty of them as Governing Director.

86 In Wentworth v Wentworth (Supreme Court of New South Wales, 14 June 1991, unreported) Bryson J held that the Articles in that case conferred on the testator an entrenched privilege in the company’s affairs of obtaining the allotment to him by the directors of any or all un-issued shares. His Honour concluded that there was no fiduciary obligation attaching to that power. In dealing with the question of notional estate and prescribed transactions his Honour observed that the definition of “property” in the Act was defined to include “any valuable benefit” and said:

In relation to a valuable benefit, it is clear that there can be a prescribed transaction. The valuable benefit can become held by a person and the prescribed transaction can take effect without any assignment, vesting or disposition of any property falling within the very extensive range of the earlier expressions in the definition of “property”. That is, it is within the intention explicitly expressed in the Act that the taking effect of a valuable benefit’s becoming held by a person can occur although there has been no change at all in the ownership of any real or personal property, of any estate or interest in real or personal property, or of any money or of any debt or of any cause of action or of any other chose in action or of any right with respect to property.

On the death of the testator there was no alteration in the property rights, in the ordinary sense, of any person with respect to any shares in Recato Ten Pty Ltd except for the property rights to 100D class shares passing under his will. However there was a large enhancement in the value of the defendant’s ordinary shares in Recato Ten in that there ceased to be a possibility that the testator might allot shares to himself. The consequence was that a valuable benefit became held by the defendant; the valuable benefit was the accrual of value to his shares, and this took effect when the testator died.

...

There was of course no valuable consideration in relation to that prescribed transaction.

87 In Schaeffer v Schaeffer (1994) 36 NSWLR 315 Handley JA referred to Bryson J’s decision in Wentworth v Wentworth and said at 319D:

In any event, in my respectful opinion, this part of the decision of Bryson J was clearly right. There was, and could be, no challenge to the Master’s conclusion that the increase in the value of the other shares in the company on the death of the deceased was a valuable benefit.

88 In Wentworth v Wentworth the articles of the relevant company included an article which provided that the shares in the company were under the control of “and may be issued by the directors either at par or at a premium to such persons at such times on such terms and conditions” and with such “rights, privileges, conditions, restrictions or limitations” as the directors may from time to time determine. Article A4.2(4) provided that notwithstanding any other provisions of the Memorandum of Association and the Articles the deceased was entitled to apply for and the directors were at liberty to allot to him at par all or any of the un-issued shares in the capital of the company and the “holders of all of the shares in the capital of the company hereby consent to and shall be deemed to have consented to every such allotment”. It was that clause that Bryson J concluded conferred on the deceased the “entrenched privilege” of obtaining the allotment and of exercising the power of directors to do that. His Honour also concluded that there was no fiduciary obligation attaching to that power. It is true that in the present case the Articles of the Company do not include an Article analogous to Article 4.2(4) of the articles in Wentworth v Wentworth.

89 Although Mr Willmott suggested that there was no evidence that the deceased “did any of the hard work” but obviously “looked after the children”, it is clear to me that the deceased was in control of the Company and her “work” as a driving force in managing the Company and its workers, her sons, in an extremely successful manner is appropriately described as the “hard work”. I agree with the plaintiff’s submission that any issue of shares to the deceased would not have been inconsistent with her fiduciary obligations. The deceased could also have issued shares to others. The omission to issue those shares resulted in the valuable benefit being held by the defendant and Barry. There is no issue that valuable consideration was not given for such omission.

90 I am satisfied that the deceased’s omission to issue the shares, either to herself or anyone else resulted in the defendant and Barry holding property in the form of a valuable benefit – the enhancement of the value of their shares by reason of the removal of any prospect of further shares being issued.

Should an order designating notional estate be made?

91 The Company was the owner of all of the land holdings, except for Burgoon, until the defendant and Barry decided to place the Company into liquidation in June 2009 when the land was apparently transferred into their joint names. As I have said above I do not know what prompted this conduct.

92 The defendant gave evidence that he believed that the Deed of Release that the plaintiff signed on 9 March 1992 would prevent the plaintiff from making a claim either on the Company or the deceased’s estate. He gave evidence that if he had not held that belief he would have done things differently and perhaps tried to persuade the deceased to give up control of the Business to himself and to Barry. He said that he would have had “second thoughts” about doing certain things including restricting himself to the modest drawings from the Company and working seven days per week. In other words the defendant would not have lived so frugally to build up the assets of the Partnership and the Company if he had known that he was at risk of the plaintiff taking the benefit of that hard work.

93 Barry emphasised a decision that he made with the defendant to purchase 10 Angus bulls at about $20,000. He claimed that this was a significant decision because it meant a change to the colour of their herd and the beginning of a long process to breed a particular type and quality of cattle. He said that many of the years between 1992 and the trial were the subject of severe droughts and he and the defendant continued to look at opportunities to increase their cattle numbers. This involved travelling vast distances to inspect suitable properties for agistment. Over the years since 1992 he and the defendant have made 48 agistment arrangements which involved inspecting many other properties in New South Wales and Queensland before arriving at their decision. Barry claimed that over the last eight years the workload had increased by about 30% to 40% because of their decision to expand the Business. He claimed that he worked in the belief that he would get his “share” of the Business later on and that if he had known the plaintiff was capable of “upsetting the arrangement” that was made in 1992 he “might not” have entered into the arrangement to give the plaintiff a share of the Business or he “might” have asked the deceased to give him his own share of the Business at the same time.

94 Barry’s evidence was that had he known that the plaintiff might still have been able to make a claim he would “certainly have thought long and hard” about: working almost seven days a week and as hard as he did; taking the financial risks in acquiring Burgoon; increasing cattle numbers to over double the numbers in 1992; or taking all of the financial risks associated with placing between 30% and 50% of the cattle on agistment.

95 Both the defendant and Barry claimed that for the Business to continue to operate at present levels it is important for them to keep all their land. Barry claimed that any reduction in the size of the land holdings would result in the significant decrease in the number of cattle and that any order in favour of the plaintiff would “undoubtedly” have an impact on the profitability of the Business.

96 I am also conscious of the fact that it was the plaintiff’s choice to leave the Partnership when he did. There were alternatives for him including complying with the deceased’s decision in relation to the horses and pursuing his interests in this regard outside the environment of the Partnership. However the fact remains that the intention to provide the plaintiff with at the very least a third share in the land holdings of the Company was not achieved.

97 I understand the evidence of the defendant and Barry that they may not have worked so hard had they known that their efforts might result in the plaintiff obtaining the benefits of their hard work. However since 1992, as they have built their Business and expanded their land holdings, they have had the benefit of the plaintiff’s hard work in that they retained a proportion of the plaintiff’s share that should have been made available to the plaintiff in 1992.

98 It was submitted on the plaintiff’s behalf that an appropriate allowance that “a wise and prudent parent” might have properly made in favour of the plaintiff was in the sum of $2 million. It is true that in 1992 the plaintiff did not receive the intended “share” at the time of the termination of the Partnership. However this is not a partnership dispute. It must be remembered that this is an application for an order that provision be made out of the notional estate of the deceased that in the opinion of the Court ought to have been made having regard to the circumstances that presently pertain.

99 It is not appropriate to simply look at the deficiency in the plaintiff’s “share” in 1992 and make an award equivalent to that deficiency plus interest. That approach would ignore the passing of 18 years of extraordinarily hard work and risk taking by the defendant and his brother in building their very successful business. The approach to be adopted is to recognise that there was some financial deficiency under which the plaintiff laboured during the years since 1992 and have regard to the reasonable expectations of the defendant and Barry in deciding whether an order designating property as notional estate is consistent with the substantial justice and merits of the case.

Conclusion

100 I am satisfied that an order should be made designating property as notional estate of the deceased to enable provision to be made for the plaintiff in the amount of $750,000. The parties requested that I indicate this outcome so that a possible agreed regime might be reached to finalise the matter without the necessity to make the order. Accordingly I list this matter on 6 September 2010 at 10.00am for agreed orders. If the parties are unable to reach agreement I will make appropriate orders.

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LAST UPDATED:
19 August 2010