Wills & estates: Hitchcock v Pratt Part II - did a party domiciled in Victoria leave a notional estate in New South Wales?

In Part I of this Bulletin we looked at the cross jurisdictional issues that arose in Hitchcock v Pratt [2010] NSWSC 1508. The case also had interesting implications for legal advisers by considering the use of trusts and the nature of notional estate that can sometimes arise for clients who are making or defending a family provision claim.

The facts

Richard Pratt (the deceased) was domiciled in Victoria at his date of death in April 2009. Probate of his Will was granted by the Supreme Court of Victoria to his widow, Jeanne Pratt (the defendant).

Sharilea Hitchcock and her daughter Paula Hitchcock (the plaintiffs) commenced proceedings in the Supreme Court of New South Wales for family provision orders even though the deceased left no direct estate in NSW.

The plaintiffs also sought a declaration that four properties located in NSW, the registered owners of which were various companies, were part of the "notional estate" of the deceased under the Act. The claim for further provision could not succeed unless the properties were declared to be notional estate as there were no other estate assets in NSW.

Did the deceased leave notional estate in NSW?

The Succession Act 2006 (Act) allows the Court to designate certain property as "notional estate" by nullifying any transfer of assets made by the deceased during their lifetime with the intention of preventing or limiting a family provision claim on their estate.

There must be a "relevant property transaction" that results in a transfer of assets for less than full valuable consideration for the transaction. A "relevant property transaction" can include the failure to sever a joint tenancy, placing assets in a trust, or dealing with superannuation in a particular way.

Once property is designated as notional estate it assumes the equivalence of actual estate.

The plaintiffs argued that the deceased had sufficient de facto control over four particular properties in NSW for the properties to be included as notional estate. The properties were owned by subsidiary companies within a complex structure. The corporate structure was ultimately owned by Pratt Group Holdings Pty Ltd, the trustee of the Pratt Family Holdings Trust (the Trust). The deceased and the defendant were the only directors of the subsidiaries which directly owned the properties.

Mr Pratt was not a director of Pratt Group Holdings Pty Ltd but the shares in that company were held by other companies on trust for Mr Pratt who was the beneficial owner of the shares. Through his beneficial ownership of the shares in Pratt Group Holdings Pty Ltd Brereton J accepted that it was "at least arguable that Mr Pratt had the legal capacity to control" the existing trustee. In short, he could have removed and replaced its directors by exercising his shareholder powers.

Both Mr Pratt and the defendant were specifically excluded from benefitting from the Trust as was any company or trust in which they had an interest. By amendment to the trust deed on 4 June 2001 Paula Hitchcock was added to the "excluded class" (i.e. persons who cannot benefit from the Trust) as was any relative of the mother of Paula Hitchcock. It does not appear that Sharilea Hitchcock was specifically excluded from benefitting from the Trust, however, in any case she was not actually included within the class of beneficiaries to begin with.

The beneficiaries of the Trust were the children of Richard and Jeanne Pratt and various relations of them and certain other persons.

While the trust deed was capable of being amended, the amending power specifically excluded any amendment that would benefit a member of the excluded class.

Although it was found that Mr Pratt did, at least arguably, have effective control of the trustee of the Trust it was recognised that the only property of the Trust was shares in various subsidiary companies (all of which were located in Victoria). The NSW real estate was not property of the Trust.

Further, even though it was accepted that Mr Pratt at least indirectly controlled the Trust he could not receive any income or capital distributions from the Trust nor could the plaintiffs.

Further still, any decision of the companies that held the NSW real estate to dispose of those properties to Mr Pratt (even if Mr Pratt could be seen to control the decision making) could only be made for full market value consideration otherwise the directors would have breached their fiduciary duties.

For all of these reasons, it was held that there was no apparent arguable basis upon which the NSW real estate could be included in the notional estate of Mr Pratt and therefore the plaintiff’s family provision claim must fail.

Conclusion

Legal practitioners should note how in this case, the structure of an inter vivos trust was effective protection against a claim family provision order which may well have planning applications in a purely NSW domestic context as well as a cross jurisdictional context.

Author: Philip Davis