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Appeal Court confirms provision can be ordered without proving financial need

Appeal Court confirms provision can be ordered without proving financial need

Published on November 6, 2023 by Selwyn BlackSelwyn Black

In a unanimous October 2023 decision in the Soulos case, the NSW Court of Appeal dismissed appeals against the decision of Justice Lindsay to exercise discretion under the NSW Succession Act to make provision effectively changing a will, where financial need was not demonstrated. This article is a case summary of Soulos v Pagones; Soulos v Soulos; Soulos v Soulos; Soulos v Pagones; Kristallis v Soulos; Kristallis v Soulos; Kristallis v Pagones [2023] NSWCA 243.

The family provision discretion allows the Court to have regard to several matters, not only financial need. In this case, the Court found that the deceased had engendered in each of her 4 children an expectation that each of the 4 children would share equally in the material benefit of the family assets, through their shareholdings in a company with substantial property holdings.

On a similar basis, one of the children (for whom we acted) also increased the number of shares he held at the expense of another sibling, to achieve equal shareholding. The Court found that he had originally transferred those shares to his parents at their insistence, because of their objections to his marriage – a relationship the Trial Judge described as a “love match”.

The Court was at first instance, and on appeal, assisted by the simultaneous hearing of Succession Act claims by 3 siblings, and of an Oppression case under the Corporations Act brought by 1 of them.

The Court found Oppression by the child who (if provision orders had not been made) would have received the controlling management shares, and therefore exclusive control of the key company.

It is important to note that there is no general right to equality between beneficiaries or children. However, in this case the finding that the deceased had encouraged the children to expect that they would share equally, together with the important contributions by the claimants (including our client, who gave up university studies towards a career in medicine to save the family business, when the father took ill), meant that was the appropriate result for the shares.

It is notable that apart from increasing the number of “equity” shares given to our client, the initial decision included a finding that redistributing the management shares was necessary to unlock the asset-backed value of the shares bequeathed to or held by the respective children. The Appeal Court did not disturb the finding that such an order was appropriate, to give effect to the assurances given by the deceased over her lifetime.

There are several lessons from this case, including for estate planning. In particular, Testators should take care in structuring how control is to be allocated. 

There are some legal techniques where an appropriate balancing of control and of interests can be established, so that even if a particular child or other beneficiary is intended to have a key management role, there are some limitations in what they or their successors can do, and appropriate transparency and other shareholder protections. In our view that is as important for family companies as those held between unrelated shareholders.

The Court emphasised that there are several factors to be considered under s.59(1) of the Succession Act, and expressly adopted the submission by Senior Counsel on behalf of our client that in this particular case, the recognition of the contributions and expectations “carried the day”.

Please contact Carroll & O’Dea Lawyers on 1800 059 278 or via our Contact Page if you have any questions surrounding estate planning or succession disputes.

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