Kowalski v Public Trustee[2011] QSC 323

SUPREME COURT OF QUEENSLAND

[1] McMeekin J:  The applicant is Elizabeth Ann Kowalski. She is the widow of Stanislaw Kowalski, deceased. She will reach 90 years of age on her next birthday.[1] She makes two applications. In the first she seeks an order under Part IV of the Succession Act 1981 (Qld) for further provision out of the estate of her deceased husband. The second is an interlocutory application seeking the court’s sanction of a deed of settlement dated 12 April 2011 pursuant to which the applicant’s claim for further provision would be compromised.

[2] The first respondent, The Public Trustee of Queensland, is the executor of the estate of the deceased and supports the two applications.

[3] The second respondent is Ms Leigh-Anne Kowalski. She is the daughter of the deceased and a beneficiary under his will. Her final submissions suggest that she accepts that there might be some alternative provision made for the applicant but in general terms she opposes both applications.

[4] The second respondent is an undischarged bankrupt. The third respondents are the trustees of her bankrupt estate. The trustees support orders being made in accordance with the terms of the two applications.

[5] When the matter first came before me the application was effectively to sanction the deed of settlement that had been agreed between the applicant, the first respondent and the third respondent. The second respondent was, by this time, not legally represented. She appeared and strongly opposed the making of the orders sought by the other parties. Her complaint was that the Public Trustee was not, by his acceptance of the compromise, representing her wishes or protecting her interests.  The other parties strongly contended that the second respondent lacked standing to be heard because she is an undischarged bankrupt.

[6] The material disclosed that the second respondent was a single mother supporting four young children, each of whom had special needs. Despite any possible lack of standing as an undischarged bankrupt[2] I was concerned that the second respondent have full opportunity to place whatever evidence she thought appropriate before me. I directed that the parties file such further affidavits and submissions as they might be advised and, with the consent of the parties, that the matter be heard on the papers.

[7] As to the claimed lack of standing, I was by no means convinced that it could be right to assert that the second respondent, in these circumstances, should not be heard. Her material indicated that she owed debts of $25,000 when she entered bankruptcy. The trustees assert that the sum that now must be found to have the bankruptcy annulled has grown to about $65,000 with their costs and expenses. The second respondent’s interest in this estate far exceeds those sums. Thus she is a person significantly adversely affected by the proposed settlement. She asserts that neither her trustee in bankruptcy nor the Public Trustee is acting on her instructions or in her interests. It would be surprising thing if she could not be heard. The authority relied on for the claimed lack of standing (Metherell) was a case in which the bankrupt agreed with the proposed settlement and whose interests were therefore not adversely affected by the agreement.

[8] I note that s 178 of the Bankruptcy Act 1966 (Cth) is in the following terms:-

"If the Bankrupt, a creditor or any other person is affected by an act, omission or decision of the trustee, he may apply to the Court, and the Court may make such order in the matter as it thinks just and equitable."

[9] It is not necessary that the second respondent establish any bad faith or recklessness on the part of the trustee in bankruptcy to engage the section. In Re Tyndall (1977) 30 FLR 6 at 9-10 Deane J in speaking of the proper construction of s 178 of the Act said:-

"In my view, the wording of s 178 of the Act is such as to confer upon the court the widest possible discretion as to the appropriate order which should be made in the particular case and is quite inconsistent with the approach that, upon an application made pursuant to the section by a bankrupt, creditor or other person affected by an act, omission or decision of the trustee, the court is only empowered to interfere with the trustee's act, omission or decision if it is of the view that the trustee has acted absurdly or unreasonably or in bad faith. Once the matter is properly before the court, the court is, by the express words of s 178, empowered (and, as I have said, obliged) to make such order in the matter as it thinks just and equitable.

This is not, of course, to say that the court should either disregard the relevant decision of the trustee or ignore the well established policy under bankruptcy legislation that the court should not unduly interfere with the day-to-day administration of a bankrupt's estate by a trustee."

[10] While the second respondent did not allude to the provision, presumably because she is unaware of its existence, it seems to me that it would be a waste of time and money to require the second respondent to bring a separate application to specifically engage the section, particularly given the size of the estate and the importance of preserving as much of it as possible for the intended beneficiaries.  Plainly the section recognises that a trustee in bankruptcy, and a Court, is obliged to bear in mind the legitimate interests of the bankrupt in decisions made that affect the bankrupt’s estate.  Given the philosophy that imbues modern day litigation of minimising expense and avoiding undue technicality[3] the best course was plainly to let the second respondent be heard.  It is certainly “desirable, just and convenient”[4] to have the second respondent before the Court.  Hence I ordered that she be joined and I have permitted the second respondent to file such affidavits as she saw fit and make submissions.

[11] The testator died on 15 August 2009 aged 83 years. The applicant is his second wife. The second respondent is his daughter by his first marriage. The applicant has a son, David Rankin, from her first marriage. He makes no claim.

The Terms of the Deceased’s Will

[12] By cl 6 of his will the deceased provided:

“6. Interest in Property

I GIVE my property 6 SLEIPNER STREET NORTH ROCKHAMPTON 4701 together with all my household furniture and household effects (other than motor vehicles) therein at my death (‘the property’) TO my Trustee ON TRUST to permit my wife ELIZABETH ANN KOWALSKI presently living at the property if ELIZABETH ANN KOWALSKI is residing in the property at my death or takes up residence in the property within 3 months of my death TO reside in the property during her lifetime or until in the opinion of my Trustee she is not residing permanently in the property whichever is the event first to occur AND while residing in the property ELIZABETH ANN KOWALSKI is to have the full use of my household furniture and household effects as a personal right.

During the period of the right of residence ELIZABETH ANN KOWALSKI is required to:-

(a)keep the property in a state of repair to the satisfaction of my Trustee and observe any reasonable requirements as my Trustee shall from time to time think fit

(b)insure the part(s) of the property which must (in the sole discretion of my Trustee) be insured against loss or damage or other insurable risk

(c)pay all rates taxes insurance premiums and other periodical outgoings payable on the property.

ON the failure or termination of this right my Trustee is to hold the property ON TRUST to form part of the residue of my estate.”

[13] The rest and residue of the estate was left to the second respondent.

The Issues

[14] The essential questions are:

(a)Do I have jurisdiction to intervene?

(b)If so, should I approve the agreed settlement?

(c)If I have jurisdiction but am against sanctioning the agreed settlement, what order should be made?

[15] The second respondent’s objection to the agreed settlement is that it pays scant regard to the testator’s wishes, and has the effect of unduly favouring the applicant, and, given her limited life expectancy, in effect her son, to the exclusion of the second respondent.

The Estate

[16] The principal asset of the estate is the former matrimonial home located at 6 Sleipner Street, North Rockhampton. The property was at one time valued at $420,000 but in more recent times market appraisals have been between $350,000 and $390,000.

[17] After legal costs the net distributable value of the estate is estimated at about $277,000 adopting a value of $370,000 for the Sleipner Street residence.

The Relationship between the Applicant and the Deceased

[18] The applicant met the deceased in late 1978 shortly after separating from her then husband.  They married in January 1984 when the applicant was aged 62 years and the deceased 58 years.  Not long after their marriage, the testator retired. He had worked as a coal miner at Moura.

[19] At the time of the marriage the applicant had cash deposits of about $55,000 and a full household of furniture. She was a pensioner.  The deceased owned his home at 167 Venables Street North Rockhampton, a car, furniture and had a superannuation fund.

[20] The Sleipner Street property was acquired at about this time and a house constructed, all with the deceased’s resources.  It is apparent that there was some separation in the financial affairs of the deceased and the applicant. She is unaware of how the home was paid for. Her contribution to the home was in decorating and furnishing it.  She says that over the years she assisted in its maintenance and her pension went towards insurance, rates and water charges.

[21] There is a substantial dispute between the applicant and the second respondent as to the nature of the relationship between the deceased and the applicant.  The applicant and the Public Trustee each object to much of the second respondent’s material. They are right to do so. It is generally hearsay, speculative and unhelpful.  The second respondent was not in a position to observe the applicant interact with her father and much of what she relates is what she assumes or what she claims her father said to her.  Such statements are not admissible as to their truth but, at best, go only to explain why the testator may have distributed his estate in a particular way. Even that may not be particularly relevant. So much was explained by Gibbs J in Hughes v National Trustees and Executors (1979) 143 CLR 134 at 138.

[22] The only admissible evidence then is that of the applicant herself.  She deposes to having the role of homemaker, taking care of most of their joint domestic needs. She and the deceased had their separate interests but many joint ones and, as well, maintained a sexual relationship until ill health intervened. The applicant maintains, and there is no reason to doubt her view, that she and the testator were, during their relationship, “dependent upon each other for assistance and support”.[5]

[23] There is no suggestion of any disentitling conduct.  The highest that the various matters referred to by the second respondent can be put is that, if true, they evidence a marriage with its own idiosyncrasies. Acrimony, if it existed, would not alter the obligation on the deceased to provide for his widow. Even separated and divorced spouses may have an entitlement.[6]

[24] The applicant was aged 87 years when the testator died. They had been together for 30 years and married for 25 years.

The Applicant’s Financial Position and Health

[25] The applicant continues to reside in the former matrimonial home at Sleipner Street, a high set residence. She has assets of $36,900. She previously held a term deposit of $30,000 which has been depleted by the legal costs of this proceeding. She has $19,300 remaining. She has $17,600 in her general bank account. She owns a 1988 Ford LTD of nominal value. She has furniture and personal effects of no significant value. She does not have any liabilities. Her sole income is from her pension of $729.30 per fortnight or $18,961.80 per year. Ignoring extraordinary expenses she has a small surplus of income over expenditure of $20.60 per fortnight or $535.60 per year. To achieve this she lives frugally.

[26] The applicant is in generally good health. Despite her age she is well able to live independently and wishes to continue doing so. She would prefer to live in a low set residence and closer to shops and medical services. She receives assistance once a fortnight to do her shopping, and also with cleaning and mowing. She suffers from glaucoma and shingles.  Her ankles have been inflamed over the last few months which have prevented her from driving, although she does hope to resume driving. She has an approximate five year life expectancy on the Australian Life tables. There is no reason to believe that she will have a shortened life expectancy.

The Deceased’s Relationship with the Second Respondent

[27] The second respondent is the deceased’s only child of his first marriage It appears to be common ground that the second respondent saw the deceased in person on only three occasions in the last 30 years of his life - in 1989, in 1990 when he was in hospital, and in 2009 when he was in hospital shortly before he died.  Nonetheless, despite that geographical separation, the second respondent maintains, and her claim is supported by the exhibits that she has annexed to her affidavits, that she and her father “were still close with each other and kept in regular contact by phone and by sending cards and letters to each other”.[7]

[28] This separation came about through no fault of the second respondent. Her parents separated when she was aged two years and she lived with her mother until she was 17 years of age. Her mother did not keep her appraised of the deceased’s whereabouts. Contact resumed when the second respondent was aged about 11 years and became more frequent as she matured. The second respondent says that they eventually spoke to each other by telephone about every fortnight. Cards and gifts were exchanged.

[29] It is apparent that the deceased had, and expressed, affection for the second respondent and her family. This was reciprocated.

[30] The second respondent was aged 39 years when the testator died and is now aged 42 years.[8]

The Second Respondent’s Family Circumstances and Health

[31] The second respondent lives in shared rental accommodation in Tewantin with her four children, Kaitlyn, 13, Hayley, 11, Michael, 9, and Lauren, 7. The family is, and has been for some years, on a waiting list for public housing. The second respondent separated from her de facto partner of 14 years in 2006. She is raising her four children as a single parent.  It would seem that she has never married nor is she presently in a relationship.

[32] The second respondent has been diagnosed with a degenerative bone disorder, sustained a cervical injury in a motor vehicle accident which continues to cause her pain and restrict her movement, and has tennis elbow.  The family’s usual general practitioner is Dr Robert Hoffman.  His opinion is that her conditions are permanent and are likely to deteriorate over time. He is concerned that those conditions “may reach a point at which she will no longer be able to engage in employment.”

[33] Two of the second respondent's children have significant problems. Her son, Michael, has been diagnosed with attention deficit hyperactivity disorder (ADHD) and oppositional defiant disorder (ODD). He is under the treatment of a paediatrician. Dr Hoffman thinks that it is likely that he will be affected by his psychiatric disorders for many years to come. His treatment includes regular medication and an organic diet.

[34] The second respondent’s youngest daughter, Lauren, has also been diagnosed with ADHD and as well a central auditory processing defect. Dr Hoffman has expressed the opinion that she “will require intensive and ongoing occupational therapy assistance as well as physical therapy to develop her deficient fine and gross motor skills”. Her treatment also includes regular medication and an organic diet. There is a prospect that the second respondent may need to privately fund speech pathology, occupational therapy and a hearing device for Lauren.

[35] The second respondent anticipates that her two eldest daughters, Kaitlyn and Hayley, will require orthodontic work in the next year at a cost of $4,000 to $5,000 each.

Financial Position of the Second Respondent

[36] The second respondent has only modest assets. She has deposed that her assets consist of:

(a) a 1997 Mitsubishi Magna the value of which is estimated at between $800 and $1,000. The vehicle apparently requires expenditure on a new power steering box and replacement tappet cover. The cost of these repairs does not appear from the second respondent’s evidence;

(b) furniture and personal belongs the value of which she estimated at $5,000;

(c) savings in October 2010 of approximately $1,500.

[37] The second respondent works part-time as a sales assistant at Big W in Noosaville. She currently earns $694 per fortnight from her employment. She is also in receipt of a parenting payment, two carer’s allowances, and a sole parent pension, totalling $1,304.16 per fortnight. Her total income is therefore $1,996.60 per fortnight or $51,911.60 per year.  She effectively expends her entire income supporting her family.

[38] Should the second respondent have to bear the costs of private treatment for her children, or should her health deteriorate so as to prevent her working, then she will be in serious financial difficulty. As I have mentioned she is an undischarged bankrupt.

The Jurisdictional Issue

[39] The applicant’s entitlement to claim further provision from the deceased’s estate is governed by s 41(1) of the Succession Act 1981 (Qld) (“the Act)”) which provides:

“If any person (the deceased person) dies whether testate or intestate and in terms of the will or as a result of the intestacy adequate provision is not made from the estate for the proper maintenance and support of the deceased person’s spouse, child or dependant, the court may, in its discretion, on application by or on behalf of the said spouse, child or dependant, order that such provision as the court thinks fit shall be made out of the estate of the deceased person for such spouse, child or dependant.”

[40] The proper approach to applications of this type was explained as involving a two stage process in Singer v Berghouse[9] where the majority (Mason CJ, Deane and McHugh JJ) held:

“The first stage calls for a determination of whether the applicant has been left without adequate provision for his or her proper maintenance… The second stage, which only arises if that determination be made in favour of the applicant, requires the court to decide what provision ought to be made out of the deceased’s estate for the applicant.

… The determination of the first stage in the two-stage process calls for an assessment of whether the provision (if any) made was inadequate for what, in all the circumstances, was the proper level of maintenance etc. appropriate for the applicant having regard, amongst other things, to the applicant’s financial position, the size and nature of the deceased’s estate, the totality of the relationship between the applicant and the deceased, and the relationship between the deceased and other persons who have legitimate claims upon his or her bounty.

The determination of the second stage, should it arise, involves similar considerations. Indeed, in the first stage of the process, the court may need to arrive at an assessment of what is the proper level of maintenance and what is adequate provision, in which event, if it becomes necessary to embark upon the second stage of the process, that assessment will largely determine the order which should be made in favour of the applicant. In saying that, we are mindful that there may be some circumstances in which a court could refuse to make an order notwithstanding that the applicant is found to have been left without adequate provision for proper maintenance. Take, for example, a case like Ellis v Leeder ([1951] HCA 44; (1951) 82 CLR 645), where there were no assets from which an order could reasonably be made and making an order could disturb the testator's arrangements to pay creditors.” [10]

[41] I turn then to the relevant factors. At the date of the deceased’s death the applicant had a small sum available to meet contingencies. That has now been depleted by the costs incurred in these proceedings.  But, ignoring that, the fund was plainly insufficient to secure the applicant. She is in receipt of a pension that is sufficient to provide for her modest needs absent any exceptional demands. She is elderly and has no prospect of bettering her position. At her age her continuing capacity to care for herself must be considered precarious. Importantly, independently of the provision in the Will, she has no home in which to live, or that she can sell to put herself in funds.

[42] The applicant has pointed out, not unreasonably: “At present, I feel stripped of my dignity and the opportunity to live independently. I am afraid I will not have enough money left to provide for myself in the future. I am frustrated that should the court only grant me a life interest in [the testator’s] estate, I will have to account to the Public Trustee for the rest of my life as to where I live, what I spend money on and what my needs are. Any order involving the grant of a life interest in my favour would result in ongoing legal costs as I would wish and need to seek the assistance of my solicitors in dealing with the Public Trustee in relation to the terms of the life interest.”[11]

[43] I do not overlook that the second respondent had some legitimate call on the deceased’s bounty.  She is a loyal and affectionate daughter with a growing family in tenuous financial circumstances. As a child she did not receive the love and support of the deceased due to the marriage break up and the deceased might have legitimately felt this deserved redress. The second respondent, of course, is an adult and was never dependant on the deceased.

[44] But the significant point is that the applicant is the widow of the deceased, had long supported him and was dependent on him for a home. In these circumstances his first obligation was to her.[12] And I cannot see that in those circumstances he has discharged the duty of a “wise and just testator”. A life interest in the former matrimonial home, subject to conditions and determinable on the applicant quitting the home, with no other provision, is manifestly inadequate.

[45] I say that because the applicant is restricted to a home that is far from suitable for her given its isolation and its high set nature.  Her principal need is for not only for a home suited to her age, health and circumstances but for flexibility as well. As Sheller JA observed in Permanent Trustee Co Ltd v Fraser[13]: “Commonly people in the community need to move from their own home into a unit in a retirement village and then into nursing accommodation and then into total care accommodation: see per Young J in Christie v Christie (Young J, 3 December 1986, unreported) at 4.”

[46] To like effect are the observations of Kirby P in Golosky v Golosky[14] in his review of the relevant principles applicable in applications of this type:

“…No hard and fast rules can be adopted. Nevertheless, it had been said that in the absence of special circumstances, it will normally be the duty of a testator to ensure that a spouse (or spouse equivalent) is provided with a place to live appropriate to that which he or she has become accustomed to. To the extent that the assets available to the deceased will permit such a course, it is normally appropriate that the spouse (or spouse equivalent) should be provided, as well, with a fund to meet unforeseen contingencies;

(d) A mere right of residence will usually be an unsatisfactory method of providing for a spouse’s accommodation to fulfil the foregoing normal presupposition. This is because a spouse may be compelled by sickness, age, urgent supervening necessity or otherwise, with good reason, to leave the residence the spouse provided and will then be left without the kind of protection which is normally expected will be provided by a testator who is both wise and just.”[15]

[47] I observe that the reference by Kirby P to “a fund to meet unforseen contingencies” as well as the provision of a home appears to be apposite where it can be said that the widow has assisted the deceased in building up his estate,[16] a factor not present here.

[48] While the second respondent opposes the sanctioning of the compromise her final submission suggests that she is not opposed to some alteration in the terms of the will so as to cater for the applicant’s need to have a more flexible living arrangement.   

[49] In my view it is plain that there needs to be some alteration of the terms of the will in order to make “adequate provision … from the estate for the proper maintenance and support” of the applicant.  I am satisfied then as to the jurisdictional issue.

[50] I turn then to the proposed compromise.

The Effect of the Agreed Settlement

[51] As Jones J observed in Watts v Public Trustee of Queensland[17] it would be an unusual case where a Court would not sanction a settlement assuming it was satisfied as to jurisdiction, the parties are of full age and there was no evidence of any undue influence at work. However this is an unusual case. The second respondent has effectively had no say in the terms of the agreement and she is the only person adversely affected by the agreement. That her right to have the estate properly administered has vested in her trustees in bankruptcy plainly does not mean that the Court should not bring into account legitimate claims that she might have on the deceased’s bounty in assessing the appropriateness of the agreement reached.  The issue is whether the parties who each benefit from the agreement have correctly assessed the balance of the competing interests.

[52] The essential features of the agreement are as follows:

(a) the former matrimonial home at Sleipner Street is to be sold;

(b) the net proceeds of sale are to be applied as follows:

(i) first, in payment of the executor’s costs and expenses incurred in relation to the administration of the estate, the sale of the property, and the proceeding;

(ii) secondly, one-half of the balance then remaining is to be paid to the applicant, who is to bear her own costs;

(iii) thirdly, of the remaining one-half:

(A) up to $65,000 is to be paid to Leigh’s trustees in order to annul her bankruptcy;

(B) any amount remaining is to be held by the executor on trust:

(1) for the applicant on the terms of a flexible life interest (effectively a Crisp[18] order), that is, one which will enable capital to be applied to purchase a dwelling or other accommodation or pay an accommodation bond for the applicant;

(2) upon the applicant’s death and after the payment of any outstanding costs and expenses incurred by the executor in acting as such and as trustee, for the second respondent.

[53] Mr Otto of counsel, who appeared for the Public Trustee, has provided a detailed and helpful submission. He has usefully summarised the practical effect of the agreement. Assuming a net distributable estate of $357,595 the end result would be:

(a) selling costs of $10,670 and the executor’s costs and outlays of $34,665 will be paid first;

(b) of the remaining $312,260, the applicant will receive, absolutely, $156,130, and bear her own costs of up to $45,293, leaving her with a net amount of $110,837;

(c) up to $65,000 will be applied to annul the second respondent’s bankruptcy;

(d) the remaining $91,130 (or perhaps slightly more, depending on how much of the $65,000 is taken up to annul the second respondent’s bankruptcy) will be held by the executor on trust for the applicant for life, remainder for the second respondent absolutely.

[54] The evidence is that lowset units in Rockhampton suitable for a person of the applicant’s age can be obtained for about $230,000 to $250,000 and lowset houses for about $280,000 to $300,000. Legal costs, registration fees and stamp duty can amount to $10,000. Removalist and cleaning costs are likely and may cost in the order of $3,300. 

[55] It can be seen then that the lump sum that the agreement would provide to the applicant would be inadequate to fund the purchase of a residence for the applicant. The applicant has assets of her own of $36,900, being the combined balance of her bank accounts. Together with the $110,837 to which she would become absolutely entitled under the compromise, she would have capital of her own of $147,737.  She would also have access to additional capital of $91,130, held on trust under the agreement, to provide for her accommodation. This would provide her with $238,867 which would enable her to obtain a unit at the lower end of the range.

[56] The wisdom of the applicant purchasing a residence given her age, the inevitable costs involved both in purchasing and selling, and the prospect that she may need to sell and move to nursing home care and accommodation in the not remote future, should her health deteriorate, may be questioned.  I note that a lump sum, even absent the proposed trust fund, would have the advantage of putting her in funds to be able to pay a reasonable rent for many years to come. As well she could still access nursing home care and accommodation.  Nonetheless she has enjoyed living in her own accommodation for decades and that remains her wish.

[57] The evidence is to the effect that if the applicant were to need such nursing home care and accommodation in future she would be a “partially supported” resident. She would be required to pay a “basic daily fee up to a maximum of $40.25 per day”,[19] which would take up 77% of her current pension. The precise amount of the charge payable by her, and whether she would be required to pay an accommodation bond, would depend on her assets at the time of her entry into the nursing home. There is no maximum amount but she must be left with assets of $39,000 once the bond is paid. If she were required to pay an accommodation bond, the nursing home could deduct a maximum retention of $307.50 per month for a maximum period of five years.

[58] The issue that concerns me is whether some order might be fashioned that better provides for the second respondent and hence more closely complies with the deceased’s wishes.  I am concerned that the second respondent seems to have a very genuine need.

[59] The matter is complicated by the second respondent’s bankruptcy. The second respondent does not, I think, understand its true effect. That was explained by McLelland J (as his Honour then was), in Gosden v Dixon (1992) 107 ALR 329 at 331:

“In general terms, where a person becomes a bankrupt, property that belonged to him at the commencement of the bankruptcy or is acquired by him before his discharge vests in the relevant trustee and constitutes property which is available to be realised and divided among the bankrupt’s creditors. That, I think, is the effect of ss 58(1) and 116 of the Bankruptcy Act. A discharge from the bankruptcy releases the bankrupt from his debts and enables him to retain property which he subsequently acquires free of any claim by the trustee. That, I think, is the effect of ss 153 and 116 of the Act. However, a discharge does not cause to be revested in the bankrupt any property which has vested in the trustee prior to the discharge from bankruptcy. In regard to such property the trustee is still bound to collect and realise it, and to distribute the proceeds among the creditors, notwithstanding the discharge. These propositions are clearly established by several decisions including Pegler v Dale (1975) 6 ALR 62; [1975] 1 NSWLR 265; Re Balhorn; Ex parte Balhorn and Official Trustee (1981) 39 ALR 223; Daemer v Industrial Commission (1990) 22 NSWLR 178; 99 ALR 789. In the words of Lockhart J in Re Balhorn at 226:

‘The trustee of a bankrupt’s estate is still bound to collect, realise and distribute such of the bankrupt’s property as was vested before discharge in the trustee.’”

[60] Official Receiver in Bankruptcy v Schultz[20] stands for the following propositions:

(a) Upon the death of the deceased the second respondent acquired a right by reason of the residuary bequest to have the deceased estate administered in accordance with the duties of the executors;

(b) By virtue of the chose in action created by the residuary bequest the second respondent had an expectation that the assets would pass to her upon completion of the administration, subject to their being realised to meet any outstanding liabilities and to defray the costs of administration, and subject to the applicant’s life interest in respect of those assets;

(c) That interest is of such a kind that, when that chose in action passes by operation of law, such as under the Bankruptcy Act, that transmission encompasses not only the chose in action but also the expected fruits of that chose in action;

(d) That right vested in the Official Receiver by operation of s 58(1) of the Bankruptcy Act 1966 (Cth) as soon as it vested in the second respondent, since it was clearly "property" as defined in s 5(1) of the Bankruptcy Act and it became property divisible amongst her creditors;

(e) The interest derived from that right also passed to the Official Receiver at that time;

(f) Orders made under s 41 of the Succession Act would give rise to no new rights but simply bring about changes in the fruits which the second respondent anticipated would flow from her continuing right to enforce the duty of due administration.

[61] The second respondent will not be discharged from bankruptcy until March 2013.[21] Property that has become vested in her trustees during the term of her bankruptcy will remain vested in them and will not re-vest in her,[22] although if there is a surplus remaining when her debts are paid, her trustees will assign, transfer or pay it to her.

[62] The end result is that the second respondent can derive no benefit from the residuary bequest contained in the Will until her creditors are paid. She has no present capacity to pay out her creditors.

[63] The agreement proceeds from the premise that it is necessary that the applicant be provided with a substantial lump sum in the order of $156,000.  Regrettably legal costs have now substantially diminished the amount that the applicant is likely to receive.  Nonetheless I am not persuaded that a lump sum of that size is appropriate in all the circumstances. I am mindful of the cautionary observations of Mason J in White v Barron (1980) 144 CLR 431 concerning the provision of large capital sums to widows who are not young:

“A capital provision should only be awarded to a widow when it appears that this is the fairest means of securing her proper maintenance. However, the provision of a large capital sum for a widow who is not young, may, in the event of her early death, result in a substantial benefit to her relatives, contrary to the wishes of the testator, when a benefit of another kind would have afforded an adequate safeguard to her personally, without leaving her in a position in which she could benefit her relatives from the proceeds of the legacy.”

[64] Comments to like effect have been made in other cases. In McKenzie v Topp[23] Nettle J said:

“For just as community standards are the touchstone of adequate provision, so too are they the criterion of the responsibility to provide. Other things being equal, right thinking members of society are likely to accept that the needs of the widow of a second marriage should rank in priority ahead of the claims of the children of a first marriage; although of course it is always a question of fact. But equally, upon the death of the widow, and as it were in the event of a surplus, most would surely say that the children of the first marriage should rank for their fair share. For once the widow is gone, and therefore no longer in need of provision, her needs no longer warrant that the children rank behind her or thus her chosen successors.”

[65] Keane JA (as his Honour then was) considered such a proposition well settled: Hills v Chalk.[24]

[66] The applicant and the first respondent have, not unnaturally, emphasised the vulnerable position of the widow. But here the second respondent is also in a vulnerable position and has many demands upon her resources. As Bryson JA observed in Bladwell v Davis & Anor[25] “it would be an error to accord to widows generally primacy over all other applicants regardless of circumstances”.

[67] As well, the agreement assumes that the second respondent’s creditors in her bankruptcy ought to have some precedence even over the applicant’s need for suitable accommodation. That was not necessarily their position under the terms of the Will although it would have been so upon the sale of the residence. In an ideal world it would be preferable that the applicant have a substantial lump sum as well as a suitable home and the creditors paid.  But the size of the estate and the demands upon it make this impossible to achieve.

[68] If a benefit could not be fashioned to protect the applicant without taking away the second respondent’s reasonable expectations then so be it.[26] However I am not persuaded that is so.  And I am not persuaded that the agreement strikes the right balance.

[69] I turn then to the exercise of the discretion that arises in the second stage referred to in Singer v Berghouse.

What is Appropriate?

[70] The submissions of the second respondent question whether there is any immediate need for the applicant to quit the Sleipner Street residence and appear to proceed from a mistaken premise, namely, that once discharged from her bankruptcy in March 2013 her creditors will have no claim on any interest that she might later enjoy under the terms of the residuary bequest in the Will. The second respondent’s submissions were:

(a) To defer the sale of the Sleipner Street residence given the poor market conditions;

(b) In the meantime rent out the residence to provide an income stream with which to rent more suitable accommodation for the applicant;

(c) From any surplus of such income stream or upon the sale of the residence apply monies to meet the medical and associated needs of the second respondent’s children;

(d) That if alternative accommodation was necessary to meet the reasonable needs of the applicant then the Estate should own any residence acquired.

[71] My responses to those submissions, adopting the same lettering, are:

(a) While I understand the concerns expressed about market conditions the difficulty is that it cannot be known if or when conditions will turn. The applicant is at an age where delay is inappropriate.  She has felt for some time that the accommodation was far from ideal given its high set nature and its relative isolation.  Those are reasonable concerns;

(b) I have no evidence as to the rent that the Sleipner Street residence would bring in or any evidence about the rent that the applicant would need to pay to secure appropriate accommodation.   In any event, although a case can be made out that renting may be a viable option to adopt for reasons already expressed, it cannot be said that it is unreasonable for the applicant to wish to continue to enjoy the freedom of ownership with its greater measure of control over the premises in which she lives given her experience and station in life;[27]

(c) The second respondent would not be entitled to any distribution of monies from the Estate until her creditors are paid; and

(d) Whilst I accept the general tenor of the submission I do not think it right that no lump sum be provided to the applicant if that be intended.

[72] The balancing exercise is in adequately catering for the applicant’s need for reasonable and appropriate accommodation and the provision of some amount to provide for some comforts in life[28] and a buffer against unforseen events and the second respondent’s need for the financial assistance that the deceased wished to provide for her. That the second respondent’s needs must be postponed to those of the applicant cannot be avoided.

[73] The mechanism adopted by the parties to the agreement of establishing a trust fund to be administered by the executor so long as the applicant lives, effectively providing for a “portable life interest”[29] favouring the applicant is the only viable alternative that occurs to me and that enables some balancing of the competing interests.  The issue I take with the compromise is the size of the capital sum being granted to the applicant and the advancing of the interests of the creditors of the second respondent’s bankrupt estate.

[74] In my view these competing considerations can be best met by an adoption of an arrangement very much like the proposed agreement but with that agreement altered as follows:

(a) Clause 1(b)(ii) of the operative provisions of the agreement be altered by deleting the reference to “one half of the balance remaining after payment of the Executor’s costs referred to in the preceding sub paragraph” and inserting “$100,000”.

(b) Deleting the words “half of the” that appear in the opening phrase of clause 1(b)(iii);

(c) Delete clause 1(b)(iii) (1) and clause 1(c);

(d) Amend clause 1(d) by adding paragraph ii to read: “payment of such sum to the Beneficiary’s Trustees as is sufficient to annul the bankruptcy of Leigh”;

(e) Amend clause 4 by adding a sub paragraph (i) as follows: “Should the executors in their discretion pay an accommodation bond in order to secure proper accommodation for the Claimant pursuant to paragraph (b)(iii) then as between the executors and the Claimant the Claimant is to bear the liability for such accommodation bond and any monthly retention deducted from such accommodation bond is to be borne by the Claimant, with any necessary adjustment to be made as between the executors and the Claimant’s personal representative after her death”;

(f) Delete clauses 5 and 6.

[75] The provisions of clause 6 deal with costs and I do not say that they are inappropriate but it is best that the parties be heard on the question.  My intention is that the applicant’s costs will be met out of the lump sum provided to her in the orders I propose.

[76] Thus, in arriving at the figure of $100,000, I am mindful of the costs that the applicant will need to meet.  She will be left with a little over $50,000. That is the smallest amount, even when combined with her existing assets, that I envisage as reasonable to enable her to cope with the contingencies of life. That combined with the trust fund will provide her with accommodation and perhaps a little more. The applicant is at an age where her continuing good health cannot be assumed. Nor does it seem appropriate that she be forced to lead a frugal life restricted by the limits of the pension as her sole source of income. Had it not been for the second respondent’s own significant needs I would not have been inclined to interfere with the agreed arrangements.

[77] The second respondent has submitted that there should be no payment of costs out of the estate and by this, I assume, would argue that it is inappropriate that I bring this factor into account. The second respondent’s submissions include claims that the other parties have acted in “mendacious collusion” and that the arrangement reached was “so obnoxious, so improper, so nefarious” that no order ought to be made.  I cannot agree with the second respondent’s characterisation of the parties’ efforts to resolve what, on any view, is a difficult case. That the applicant has succeeded in her claim makes it plain that the impact of legal costs is a proper factor to weigh in the scales.

[78] I will hear from the parties as to the appropriate form of orders to give effect to these reasons and as to costs.