When WA billionaire Michael Wright passed away in 2012, his ‘secret daughter’, Olivia Mead, was left a $3 million trust under his will. Subject to stringent conditions and the discretion of the trustee, Olivia, now 21, would receive the capital on her 30th birthday. No doubt, more money than many would see in a lifetime.
Ms Mead made headlines when she made an application to the Supreme Court seeking to increase her share of the sizeable estate of her father, and remove the conditions upon her inheritance. The case received particular media attention due to the magnitude of the late Mr Wright’s wealth – he was a mining heir and the owner of acclaimed Margaret River winery Voyager Estate – and because Ms Mead’s claim included statements that she might require a $250,000 guitar, a $1.6 million grand piano, and Pilates lessons until the age of 97.
While Ms Mead was successful in the Supreme Court, the Court of Appeal has now drastically reduced the size of the award she was given. While open to further appeal, the recent decision sheds further light on the discretion the Court can exercise when deciding what provision is ‘adequate’.
Master Sanderson’s 2015 Decision
In 2015, Master Sanderson of the Supreme Court of WA found that Ms Mead hadn’t been left adequate provision from her late father’s estate. He ordered that she receive an immediate payment of $25 million from the residuary of the estate, and in turn give up her rights to the $3 million trust established under Mr Wright’s will.
Master Sanderson’s decision was based on the following findings:
- the testamentary trust did not adequately provide for Ms Mead, because distribution from the trust was subject to such strict conditions that she could receive ‘nothing’. For example, if Ms Mead became an alcoholic or drug addict, was suspected of having any involvement with illegal drugs, was convicted of a felony or became a member or even got involved with a ‘non-traditional’ faith, then she would not be entitled to receive anything from the trust;
- importantly, the size of the Wright estate was so substantial that $25 million was no more than a ‘rounding error’; and consequently,
- Mr Wright’s two eldest daughters would share the vast majority of the balance of the estate, an estimated $400 million each.
Given the size of the award, it was not unexpected that Master Sanderson’s decision was appealed to the WA Court of Appeal by the Executor of the will (Mr Wright’s solicitor) and the other beneficiaries of the Wright estate.
Court of Appeal 2017 Decision
In May 2015, Justice Newnes ordered that Ms Mead be paid $3 million pending the appeal of Master Sanderson’s decision.
In summary, the core grounds of appeal were as follows:
- that the Master incorrectly interpreted the terms of the will and therefore the nature of the trust established for Ms Mead;
- that the Master erred in finding that there had been adequate provision; and
- the Master erroneously exercised his discretion, including as to the quantum of the award, when making orders to alter the terms of the will.
On 22 November 2017, the Court of Appeal, held unanimously that Master Sanderson had erroneously exercised his discretion in awarding $25 million to Ms Mead.
The Court of Appeal found that Master Sanderson was incorrect to consider his discretion was ‘unfettered’ due to the ’colossal’ size of the estate, allowing him to make an award in excess of what would otherwise be ‘adequate’ provision for Ms Mead.
Instead the Court of Appeal held that the Court should do no more than is required to ensure that Ms Mead received adequate provision from the estate for her proper maintenance.
Importantly in this case, both the Master and the Court of Appeal found that Ms Mead had no special needs.
The Court of Appeal substituted the Master’s orders by decreasing the $25 million to $6.14 million, and requiring that the additional $3.14 million Ms Mead was yet to receive was to be held by an independent trustee until she turned 30. In the course of coming to this conclusion, the Court of Appeal considered what such a figure might mean in practical terms. For example, it would allow for the purchase of a property of about $1.5 million, considered to be ‘adequate and proper’ for her, with sufficient left over to provide Ms Mead with an annual income of around $100,000 from the trust.
What does this decision mean?
The take away points from this decision are as follows:
- When exercising its discretion to make an award of further provision from an estate, the discretion of the Court is not ‘unfettered’, and the Court must only make orders that are sufficient to adequately provide for the applicant.
- Testamentary trust wills should be carefully drafted to ensure that there is ‘certainty’ that the beneficiary will receive the benefit of the trust property and to avoid unnecessary claims upon the estate. Exotic or unusual conditions should only be considered with extreme caution and specialist legal advice. A beneficiary who receives a trust subject to very onerous or impossibly strict conditions is more likely to have a basis for seeking they receive their inheritance free from those conditions, even where the amount of the inheritance itself is otherwise adequate for that beneficiary.
Whilst not determinative of future cases, noting that each case will be judged on its own circumstances and merits, this decision suggests that it will be difficult for future adult applicants of average health and capability, without special needs, to argue for provision in excess of $6.2 million, and any that award in excess of this amount could be set aside on appeal.
Given the amount at stake and the substantial reduction in the award, it would be unsurprising for Ms Mead to seek leave to appeal the decision to the High Court of Australia – whether or not this is granted is another matter.
It is not clear upon what basis special leave would be granted, given the High Court’s previous decisions in this area and the fact that the relevant legal principles are well settled. This appeal decision was more about application of the legal principles, rather than the principles themselves.