Despite the abundance of professionals available to give advice on succession planning, in Western Australia it is still common to hear about a farmer’s son or daughter who have devoted their life to the family farm, forgoing career or other financial opportunities in order to draw a (usually low) wage in anticipation of a reward in the future – namely a verbal promise/understanding that they will “get the farm” when the parents retire or die. Such an arrangement would be considered completely foolhardy if entered into by anyone other than a child with implicit trust in his/her parents.
The factual circumstances for each farming family can vary widely, but children that find themselves in this position usually have at least one thing in common – they commit their lives and finances to the farm and shoulder all the risk that comes with a verbal promise.
In the absence of a documented succession plan, there is an uphill (and extremely costly) battle in store for children when a parent’s promise is broken.
The method by which the child can establish their rights is dependent upon the circumstances, including when the parent actually breaks their promise. Sometimes the promise is broken when the parents retire and fail to take steps to, for example, transfer a property as promised. Sometimes it is only broken when the parents die and their Will does not reflect the promise.
Promises broken during parents’ lifetime
If a promise is broken during the parent’s lifetime, the child’s recourse is usually through one of the following:
- an equitable claim of ‘estoppel’ – that the parents are prevented from asserting that their promises were unenforceable, as the child has relied upon those promises to his/her detriment;
- an equitable claim of ‘constructive trust’ – that the parents hold a part of the farming property ‘on trust’ for the benefit of the child, despite the parents being the only registered proprietors on the legal title, as the child has spent a considerable amount of money on improving the property.
Success in either of the above claims does not depend upon the strength of the personal financial circumstances of the child. A child could ultimately be very well off even though the promise is not kept (however that is not generally the case after a lifetime on the farm).
Most of the claims fall into the first category, as it contemplates asking the Court to fulfil the promise.
Whether or not there is any commercial sense in making a claim for the farming assets is always a difficult question. The worst case scenario is a full trial (likely in the Supreme Court) that will cost in excess of $150,000.00 in legal fees. The overall value of the farming assets in question, along with the ability of the child to show that they suffered a loss as a result of relying on the promise, are usually the most important factors. Proving the latter usually requires a comparison of the value of:
- the cost of working on the farm, namely:
- the opportunities forgone; and
- the hours worked on minimal wage (or as can sometimes be the case, no wage at all); and
- the benefits of working on the farm, namely:
- an income (if any);
- the use of subsidised or free farming accommodation;
- the use of subsidised or free utilities such as power and water;
- the use of farm vehicles and fuel; and
- the consumption of farm produce.
The case of Giumelli v Giumelli (1999) 196 CLR 101 provides a perfect case example of ‘estoppel’ in the context of a farming venture. The parents made three promises to Robert, their son. He was promised an unspecified share in the farming assets, a particular property (should he build a home on it) and later, in exchange for Robert turning down an offer of employment, a larger share in the farming assets. When Robert decided to remarry someone his parents disapproved of, the family relationship soured and the parents decided to break their promises.
Despite a vigorous defence, Robert was successful all the way through to the High Court of Australia. Much depended upon evidence of the opportunities in life that Robert turned down in order to continue working on the farm.
The case also made it very clear that success in such litigation, and more importantly the form of such success (for example a cash payment as opposed to an actual transfer of property) is difficult for lawyers to predict.
Promise broken after parents’ death
When the promise is broken by virtue of the Will, the child’s recourse is usually via a claim pursuant to the Family Provision Act 1972 (WA). However a possible difficulty is that the promise is not the focus. Family Provision Act claims are decided based on a number of factors including:
- the personal financial resources of the Plaintiff child (the child making the claim) as compared with anyone else who has a claim to the estate;
- the relationship of the child with the deceased; and
- the size of the estate.
The promise does remain relevant, but to a far lesser extent.
In the recent decision of Eckersley v Graeme Peter Eckersley as Executor of the Estate of the Late Gloria Dawn Eckersley (DEC)  WASC 154 the Plaintiff was the eldest son of a farming family. He had worked on the family farm, receiving minimal income, for about 35 years. His father had always promised him that he would inherit the farm. Over the years he did receive an amount of $700,000 to help him start up a business that he was operating outside of the farm.
The Plaintiff stopped working on the farm in 2007 and his mother passed away in 2012 (she had survived the Plaintiff’s Father).
There were two other children, a son and a daughter. The mother’s Will provided that his sister receive 68% of the estate. The Plaintiff and his brother each received 16%. The Plaintiff commenced proceedings for a further 20% share ($300,000) to be taken from his sister’s entitlement.
The Court’s main focus was to weigh the Plaintiff’s financial position against his sister’s. The Plaintiff had minimal assets and relied on the farm for his home and business venture. On the other hand, his sister was in a relatively secure financial position.
The Court placed very little weight on the Father’s promise to give the Plaintiff the farm, mainly because the notion that the Plaintiff would continue on the farm had been abandoned since about 2007.
The Court concluded that an adjustment of $200,000 would be made in favour of the Plaintiff to enable him to purchase a suitable property from which he could live and run his business.
Absent a documented succession plan, children of farming families who trust their parents’ promises do so at their own peril. Whilst it may be possible to rectify the legal situation through litigation, the cost of prosecuting the matter through to a trial is usually prohibitive.
The good news is that we can advise you on the most appropriate path to take should you find yourself in this unhappy situation.
For more information on any Estate or Succession Planning matter please contact associate Claire Hawke-Gundill on (08) 9321 3755.
The information published in this paper is of a general nature and should not be construed as legal advice. Whilst we aim to provide timely, relevant and accurate information, the law may change and circumstances may differ. You should not therefore act in reliance on it without first obtaining specific legal advice.