Case update -adult children challenging a parent’s estate

It is an unfortunate fact of life that family relationships break down – and as a result, the aggrieved family member may alter their Will to remove the other family member as a beneficiary, or only leave them with a nominal gift – even if it is their child.  Whilst it is every person’s right to prepare a Will which reflects their wishes, the excluded person may have the right to make a family provision claim for an entitlement under the Will.

In a recent family provision case (Smith v Smith [2016] NSWSC 1077), the Supreme Court of New South Wales held that 2 of the deceased’s adult children were entitled to grants of $90,000 and $100,000 (when their initial grants under the Will were $30,000 each).

The circumstances of this particular case were as follows:

  • the deceased had 3 adult children – two sons and a daughter;
  • the first son had been estranged from his father for approximately 7 years, although over that time, the son had sent approximately 10-15 text messages to his father, but with no response;
  • the daughter had been estranged from her father for approximately 19 years, although over that time, she had made some attempts to contact her father, but with no success;
  • the second son had a close relationship with the father, caring for him in the last few weeks of his life before he passed away from bowel cancer;
  • in his Will, the father left a bequest of $30,000 to his first son, a bequest of $30,000 to his daughter, some other bequests to grand-children, with the balance of the Estate to be gifted to his second son.

LPPAfter hearing evidence from all parties regarding the difficulties of their relationship with their father, their current financial circumstances, their future financial needs, and the size of the Estate, the Court noted that the breakdown in the relationship was highly likely due to the deceased’s difficulty personality, noting that the children’s limited attempts to contact their father were unsuccessful.  The Court also noted that there was no demonstration by the children of ill-temper or violence towards their father.

Noting the children’s various financial needs, the Court increased the grants to $90,000 and $100,000 respectively (from the initial grants of $30,000).

Interestingly, the Court’s reported decision made reference to a number of comments made by various Judges over the years as to what is an appropriate provision:

Minds may legitimately differ as to the provision that should be made … [W]hat is required is an instinctive synthesis that takes into account all the relevant factors and gives them due weight: Grey v Harrison [1997] 2 VR 359 per Callaway JA at 366-367

It involves

… an intuitive assessment: Kay v Archbold [2008] NSWSC 254 per White J at 126

As to what is an appropriate provision can only be determined on a case by case basis, taking into account all relevant facts and circumstances.

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Please contact Shire Legal if you have any questions about drafting a Will to exclude certain family members, or questions about making a family provision claim.

An earlier blog by Shire Legal in relation to family provision claims can be seen here.

 

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Preference Claims – Exposure of Customs Brokers and Freight Forwarders

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Due to the competitive nature of the international logistics industry, customs brokers and freight forwarders (brokers) are frequently required to outlay costs on behalf of their importer clients in order to facilitate the timely release of cargo. These costs can relate to customs duties, shipping/ freight costs, clearance and local cartage costs. Often the importer may take 30, 60 or 90 days to reimburse those costs to the broker.

Ultimately the importer is using the broker’s funds to finance its own business operations. This can be high risk to the broker. Not only does the broker not have access to its own funds, funds arrive late and sometimes under payment arrangements with the importer. Cash flow is an issue.

Brokers may obtain some comfort from the fact that they have adequate terms and conditions containing a well drafted lien clause. However, adequate cargo is required on the water or otherwise in the possession of the broker to assist here. This however does not improve cash flow.

Late payment by importers may also be an indication of solvency issues with the importer.

If a struggling importer is placed into Liquidation, the appointed liquidator may attempt to recover, for the benefit of all creditors, certain funds, described as unfair preferences, that the importer paid to the broker during the six months before the commencement of the liquidation.

Should customs duties and shipping costs be included in a preference claim?

Here’s the rub, the claim by the liquidator for repayment of unfair preferences may include not only clearance fees and cartage costs of the broker (the broker’s pure profit), but also payments made by the importer to the broker to cover disbursements paid by the broker to third parties. These disbursement costs include customs duties and shipping/ freight costs, which can make up a substantial portion of the total unfair preference claim by the liquidator.

Unfair preference

A creditor (broker) will receive an unfair preference when it receives payment of its invoices from the importer in the six months prior to the importer being placed into liquidation, and such payments result in the broker receiving more than they would have in the winding up if the broker was in the queue with other creditors.

Defences

There are a number of defences available to a broker in this situation.

The ‘good faith’ statutory defence is available where the broker can establish;

  1. That it became a party to the transaction in good-faith,
  2. That it had no reasonable grounds for suspecting that the importer was insolvent or would become insolvent (subjective test),
  3. A reasonable person in the broker’s circumstance would have no such grounds for suspecting (objective test), and
  4. That it provided valuable consideration (supply of goods or services).

There is also a ‘running account’ defence where there is a continual business relationship. This defence is not a complete defence, but may reduce the amount of the liquidator’s claim. The doctrine of ultimate effect is also a defence to a liquidator’s claim.

We recently acted for an Australian freight forwarder/ customs broker who received a summons in the Supreme Court of Victoria seeking over $500,000 in preference payments. Of concern to our client was that the great majority of the amount claimed related to customs duties and shipping costs paid out on behalf of the importer.

We were able to establish, through a detailed analysis of accounting records, expert evidence, and thorough affidavits, that the good faith defence applied, and that importantly customs duties and shipping costs should not form part of any claim. We were successful in obtaining a settlement on very favourable terms for the broker.

Risk management

It may prove difficult for brokers to argue the good faith defence, for example that they had no reasonable grounds to suspect that the importer was insolvent, if the broker had written to the importer demanding payment, issued a Statutory Demand upon the importer, or issued proceedings claiming payment. Therefore before taking the above steps it is always a good idea to seek legal advice.

Brokers may also consider obtaining a trade credit insurance policy to cover bad debts.

There are also ways to minimise the risk of a liquidator clawing back payments received. Options include;

  1. Ensure you have well drafted terms and conditions, which are incorporated into your contract with the importer,
  2. Obtain personal guarantees from directors of the importer company,
  3. Trading on a cash on delivery basis (although in practical terms this may be difficult), and
  4. Obtain security before work is commenced, such as a registered interest with the Personal Properties Security Register (PPSR) over company property.

If you have any questions on these issues please contact Tony Greenwood, solicitor at Shire Legal on 9525 3444.

Does a disabled adult child have the right to claim against their parent’s estate?

In the recent case of Baird v Harris, the Supreme Court of New South Wales certainly thought so.

This case concerned the estate of a deceased man who had 2 adult children, one of whom suffers from Autistic Spectrum Disorder.  The deceased’s estate consisted of a property near Lake Macquarie, cash, a caravan, a motor vehicle, and a motor cycle, with a total value of $497,200.  In his Will, the deceased left the property and the motor vehicle to his partner, a cash legacy of $50,000 to each of his children, the caravan to his daughter, the motor cycle to his son, and the rest of the estate to his partner.

The Court held that:

  • the son was an “eligible person” as defined in section 57 of the Succession Act;8808432-law
  • looking at the son’s financial and material circumstances, adequate provision for his proper maintenance and advancement in life was not made by his deceased father;
  • consideration then needs to be given to the son’s financial position, the size and nature of the deceased father’s estate, the relationship between the son and his deceased father, as well as the relationship between the son and

“other persons who have legitimate claims upon the deceased’s bounty and the circumstances and needs of those other persons”.

  • the Court must made a determination “according to the feeling and judgment of the fair and reasonable man in the community, the spokesman of which is, and must be, the court itself”.
  • the son was incapable of adequately providing for himself, and it was likely that, because of his medical conditions, he will never be able to do so.
  • therefore, the son should receive additional provision by way of a lump sum which would “enable him to provide for exigencies of life and provide a buffer against future contingencies”.

As a result, the Court ordered that the son was entitled to the benefit of 40% of the net proceeds of sale of the deceased father’s property.

So what does this mean for parents who are preparing their Wills?

If you have children from an earlier relationship, it may not be enough to leave a “token gift” to your children, with the rest and residue of your estate going to your current partner, particularly if your children’s particular circumstances (as well as the size of your estate) would warrant a larger distribution being made to them.