Barns v Barns
[2001] SASC 303
•12 October 2001
BARNS v BARNS & ORS
[2001] SASC 303
Full Court: Prior, Lander and Wicks JJ
PRIOR J: I agree with the reasons given by Justice Lander. The appeal should be allowed and the declaration made that the Deed between Lyle Phillip Barns (deceased) and Alice Elizabeth Barns and Malcolm Phillip Barns dated 2 May 1996 is valid.
LANDER J. This is an appeal and cross appeal from a decision of a Master of this Court in which he made the following declarations and orders:
“1.The deed between Lyle Phillip Barns (deceased) and Alice Elizabeth Barns (second defendant) and Malcolm Philip Barns (first defendant) dated 2 May 1996 (the Deed) is void as being contrary to public policy.
2.The costs of the Plaintiff, the Claimants, the First Defendant (in his capacity as Executor/Trustee), and the Second Defendant relating to the determination of the validity of the Deed as taxed or agreed on an indemnity basis be paid out of the Estate to their respective solicitors.”
The second defendant has appealed against the declaration and order. The first defendant has also appealed by way of cross appeal against the declaration and order.
The notice of appeal and cross appeal raise common grounds. The cross appellant obtained leave to amend one of his grounds of appeal on the cross appeal. However, a concession made by the respondent makes it unnecessary to decide that ground.
It would be convenient to treat the first and second defendants as having common grounds and a common position.
The defendants appeal against the declaration and seek, as a consequence, the setting aside of the costs order. It is the contention of the defendants that the declaration that the deed between them and the deceased Lyle Phillip Barns dated 2 May 1996 is erroneous and should be set aside.
The plaintiff, who is the respondent to this appeal, is the daughter of Lyle Phillip Barns who died on 14 August 1998. The first defendant is the son of the deceased and is the executor of the deceased’s estate. The second defendant is the widow of the deceased, and the mother of the plaintiff and the first defendant. There are two infant claimants, being two children of the plaintiff.
The deceased died on 14 August 1998. He had executed his will on 2 May 1996. The will was admitted to probate on 14 January 1999. The first defendant is the executor of the estate. By his will the deceased left the whole of his estate to his wife. He made no provision for his daughter, the plaintiff or his son, the first defendant.
The deceased not only executed his will on 2 May 1996, but he also executed a deed in which he and the second defendant, covenanted to make mutual wills leaving their estate to each other. They further covenanted that the survivor of them would leave his or her estate to the first defendant. The first defendant was also a party to the deed.
The plaintiff’s action is for the declaration that the Deed is void as against public policy, and for an order for provision out of the estate under the Inheritance (Family Provision) Act 1972 (SA) (the Act). The two infant claimants also seek a provision under that Act.
The first and second defendants resist the plaintiff’s claim for the declaration which she has obtained. The first defendant as the deceased’s executor also resists the claim for provision under the Act. The defendants’ claim that the obligations which the deceased, the first and the second defendants entered into on 2 May 1996 gave rise to a trust in favour of the second defendant and first defendant. It is the defendants’ contention that the deed of 2 May 1996 means that there is no property in the estate of the deceased which may be the subject of an order of the Court for provision out of the estate.
The plaintiff on the other hand asserts that the deed of 2 May 1996 is void because it is contrary to public policy. It is contrary to public policy because, if the Deed does have the effect of creating a trust over the deceased’s property then persons who would otherwise be entitled to claim under the provisions of the Act would be precluded from doing so. If the Deed is void it is the plaintiff’s case that no trust arises in respect of the property which would otherwise comprise the estate of the deceased.
Alternatively, it was put on the appeal that if the Deed was valid then it did not have the effect of creating a trust over the deceased’s estate and the plaintiff was thereby not debarred from obtaining relief under the Act.
On 27 April 2001 the Master directed that the issue as to the validity of the deed be dealt with separately and be determined before any other issue in the action. The Master made the following order:
“1.That the issues relating to the validity of the relevant Deed be heard and determined before any other issue in this action and that that aspect of the trial commence on 22 May, 2001 at 10:15am.”
If the defendants’ contentions were correct it would mean that there would be no property in the estate and no provision could be made in favour of the plaintiff. If, on the other hand, the plaintiff’s contention were correct and the Deed was void then the plaintiff’s and her children’s claims for provision could proceed.
There is no doubt that the Master made the order for the hearing of the preliminary issue in case the defendants’ contentions were correct and the Deed was void. The Master was seeking to avoid the consequence that the plaintiff and the claimants’ would be put to the cost of a trial for their claims under the Act in circumstances where, if the Deed was valid, the deceased died without an estate.
The Master, in his reasons, said at paragraph 6:
“Prior to the trial, on the application of the parties, I directed that the issues relating to the validity of the Deed be heard and determined before any other issues in the action. The parties requested a trial on these preliminary points because, if the Court determined that the Deed was valid and that a trust thereby arose in favour of the first defendant which precluded the beneficial interest in the deceased’s property falling into the estate of the deceased, the question of the plaintiff’s and the claimants’ entitlement to an order would be determined without the parties having to participate in what otherwise would be a lengthy trial of all the issues in dispute between the parties. It was thought that if the Court decided against the defendants on these issues, such a determination would assist the parties in any settlement negotiations that they might pursue after such a determination.”
This preliminary issue went to trial in circumstances where the pleadings were incomplete. The plaintiff filed a Statement of Claim which sought relief under the Act. It also raised the question of the validity of the Deed. The plaintiff pleaded:
“84.The defendants have alleged that they and the deceased entered into an agreement whereby the deceased and the first defendant agreed to execute mutual wills.
85.On a date in the year 1995, which is unknown to the plaintiff, the deceased and the defendants obtained advice from Grope Hamilton, solicitors, as to the best method of protecting the estates of the deceased and the second defendant from any claim which the plaintiff might have against either estate.
86.On a date in the year 1995, the said Grope Hamilton prepared a deed in which the deceased and the defendants were named as parties to it and the effect of which was:-
(a)that the deceased and the second defendant would each execute a will;
(b)whereby the first defendant was named as executor for each of them;
(c)that all property owned by each of them would be left to the survivor of them and the first defendant in substitution therefore;
(d)that neither would revoke his or her will or add to or vary the terms thereof with the written consent of the other and the first defendant;
(e)that the terms of the said deceased were irrevocable;
87.A will was prepared for the deceased by the said Grope Hamilton and pursuant to the terms thereof
(a) he revoked all former testamentary dispositions;
(b) appointed the first defendant as executor;
(c)devised and bequeathed the whole of his nett estate to the second defendant provided that she survive him for a period of thirty days otherwise to the first defendant.
88.A will was prepared for the second defendant in almost exactly the same terms.
89.On the 2nd day of May, 1996, the deceased and the defendants executed the said deed and on the same day, the deceased and the second defendant executed their respective wills.
90.The defendants assert through the said Grope Hamilton that the deed and the mutual wills of the deceased and the second defendant have the effect of creating circumstances whereby the plaintiff cannot make any claim against the estate of the deceased.
91.The plaintiff says that if the defendants are relying on the irrevocable deed and the mutual wills referred to above as a means whereby the plaintiff cannot bring and prosecute successfully a claim pursuant to the provisions of the Inheritance (Family Provisions) Act (‘the Act’) then the deed is void as being contrary to public policy.
92.The plaintiff further says that any such reliance by the defendants that the deed would operate as a bar to the rights which she has under the Act would amount to unconscionable conduct on the part of the defendants.
93.The plaintiff seeks the following orders:
(a)a declaration that the deed executed on the 2nd day of May 1996 is void and of no effect as against the claim of the plaintiff,
(b)that the defendants pay the costs thereof.
94.The plaintiff seeks the following relief:
(a)that the plaintiff do receive out of the estate of the deceased such amount as to the court seems fair and proper,
(b)that the plaintiff’s costs in relation to such claim be paid from the said estate.”
It can be seen therefore that the plaintiff’s action sought two distinct remedies. First a declaration that the Deed executed on 2 May 1996 is void and of no effect “as against the claim of the plaintiff”. Secondly for provision out of the estate of the deceased pursuant to the Act.
The claim that the Deed was void as being contrary to public policy relied upon the assertions in paragraphs 90 and 91 of the Statement of Claim.
The defendants have not filed a defence. However, it was understood by all parties that the defendants did positively assert that the effect of the Deed was to impress a trust upon the assets of which the deceased died, possessed with the result that none of those assets form part of his estate on his death. It was the defendant’s contention that the deceased died testate but without any estate. It might have been better to have required the defendants to plead in those terms so that the issues between the parties were clearly defined.
As I have said the plaintiff has put an alternative argument to this Court in the event that this Court determines the Deed is valid seeking a pronouncement of the Court on the effect of the Deed.
It seems to me that it would not be appropriate for us to approach this matter except in accordance with the clear understanding of the parties at trial and the order of the Master. The order of the Master was to determine the validity of the Deed, having regard to the plaintiff’s plea and the defendants’ assertion.
It cannot be stressed how important it is that when a preliminary issue is to be tried that the issue to be tried is precisely identified. Whilst it is often convenient to determine preliminary issues, especially when the determination of those issues, is likely to obviate the necessity of a trial of much longer and more complicated issues it is critical that the preliminary issue is precisely identified and the parties are aware of the cross contentions which are to be met: Tepko Pty Ltd v Water Board (2001) 178 ALR 634 per Kirby and Callahan JJ at 675.
Nothing I have said is meant to be critical of the course adopted by the Master in this case or the order made by him.
However, the alternative submission put by the plaintiff seems to suggest that the plaintiff has not entirely understood the limits of the inquiry on the preliminary issue and the circumstances giving rise to it.
It seems to me that the preliminary issue fell to be decided upon the plaintiff’s own plea and only upon that plea. The issue to be decided was whether the Deed of 2 May 1996 was void because the effect of it was to preclude the plaintiff and the claimant from bringing a claim for provision under the Act. That was the only issue before the Master and therefore the only issue to be considered by this Court. It will, of course, be necessary to determine the effect of the Deed upon the estate of the deceased but only for the purpose of considering the validity of the Deed itself.
The trial of the preliminary issues proceeded. At trial the infant claimants advised the court that they supported the plaintiff’s contentions but that they did not wish to be separately heard. They advised the court that they would abide by the result of the trial.
The first defendant represented himself. The plaintiff and the second defendant were represented by counsel.
The parties provided the Master with a statement of agreed facts. They tendered the deed executed on 2 May 1996, the deceased’s will executed on the same day and the second defendant’s will also executed on the same day. They tendered previous wills made by the deceased and the second defendant.
They also tendered a letter advice from solicitors dated 31 October 1995 written to Chartered Accountants retained by the defendants in connection with the wills which they subsequently made on 2 May 1996.
The parties were content to rely upon the agreed facts and the tendered documents and no other evidence was called.
The deceased and the second defendant farmed a property near Wudinna from about 1950. The first defendant is the only surviving natural child of Lyle and Alice Barns and was born on 10 June 1950. The plaintiff was born on 1 September 1957 and was adopted by Lyle and Alice shortly after her birth. In 1980 the plaintiff married. Her parents gave her $100,000 which the plaintiff contends was a gift to her and her husband for the purpose of setting up a business. The defendants assert that other assets were given to her at the time which resulted in gifts to the plaintiff aggregating $140,000. The plaintiff denies that other gifts were made. It is not necessary to resolve that dispute.
In about 1987 the plaintiff’s and her husband’s business venture failed. She became bankrupt. Her marriage was dissolved in June 1989.
After leaving school at 16 the first defendant worked on the existing farm and subsequently at all material times on additional properties used in the family farming venture.
On 20 August 1988 the second defendant and the deceased executed wills.
In October 1995 the deceased, first and second defendants consulted their accountant at Bowman Manser (Chartered Accountants) in relation to procedures by which they could ensure that the farming properties, the plant and equipment and the livestock would pass to the first defendant on the deaths of both of them.
The deceased, the first and the second defendant were provided with advice from solicitors Grope Hamilton to the accountants to whom I have already referred. It is necessary that I refer to that advice in some detail.
The letter discloses the advice required:
“As requested, I am setting out below the steps I believe Lyle and Alice Barns should take should they wish to effectively exclude their step-daughter from participating in the estate of the survivor of them. This is on the assumption that the first to die of Lyle and Alice will leave their entire estate to the survivor.”
(The reference to the stepdaughter is a reference to the plaintiff who was in fact Mr and Mrs Barns’ daughter.) The solicitors then referred to the facts and the Act. They advised that if Lyle and Alice left their entire estate to the first defendant without any provision being made for the plaintiff, then the plaintiff would have a claim against the survivor’s estate pursuant to that Act.
They then suggested three possible solutions:
“A number of solutions to the problem come to mind and I set same (sic) out below together with my thoughts as to their advisability:-
1.A gift could be made to the step-daughter today as requested by her, subject to execution by her of a deed whereby she agrees, in consideration of the gift, to make no claims in the future against the estates of either Lyle or Alice.
I advise that this device will not succeed in excluding the operation of the Act. Although a court would take the gifts into account in determining the entitlement of the step-daughter, it is not possible to exclude the operation of the Act by contracting out of the Act in this manner.
2.Lyle and Alice could establish various discretionary trust and transfer all assets into those trusts. The control of those trusts could be given either now or upon death to Malcolm.
As a result, Lyle and Alice would be left with no assists (sic) in their personal names and any claim under the Act would not be worth pursing (sic).
However, the problem with this particular solution is, in the main, the stamp duty expenses in transferring the land into the trust. Potential stamp duty in itself could be over $200,000.00.
3.It is possible for Lyle and Alice to enter into a contract with Malcolm whereby they agree that the survivor of them will leave the entire estate to Malcolm upon the death of the survivor.
The effect of this contract is that the provisions of the Act are avoided as the contractual provisions can be legally enforced in priority to any claim made under the Act.
This approach provides an effective and cost efficient method of achieving our aim. However, Lyle and Alice should be made aware that once the contract has been entered into, it will not be possible to alter same without Malcolm agreeing to any alteration.”
In November 1995 the deceased and the defendants instructed Grope Hamilton solicitors to prepare documentation in accordance with solution 3 of the Grope Hamilton letter of 31 October 1995.
On 2 May 1996 the deceased, the second defendant and the first defendant executed the Deed of that date and, on the same day, the deceased and the second defendant executed their wills in the form provided for in that Deed.
The deceased did not revoke his will during his lifetime. The second defendant has not revoked or varied her will of 2 May 1996.
The recitals to the Deed of 2 May 1996 record that the deceased agreed with the second defendant and the first defendant to make a will in the terms and form set out in the first schedule to the Deed. The second defendant also agreed with the deceased and the first defendant to make a will in the terms and form set out in the second schedule. The wills were in exactly the same form save that in the deceased’s case he left everything in the first instance to his wife, the second defendant, and in the second defendant’s case she left everything in the first instance to the deceased. Thereafter the wills were entirely consistent. Both the deceased and the second defendant provided in their wills that in the event that the other pre-deceased them or did not survive for a period of thirty days then the whole of their estate was to go to the first defendant. There was also provided that if the first defendant pre-deceased them leaving a child or children who survived and attained the age of 25 years then, in that case, the child or children would take as tenants in common the share to which the first defendant would have been entitled if he had survived and attained a vested interest under the will.
The deceased had agreed to act in such a manner so as to ensure that all property owned by him at his death devolved in the manner set out in the will, unless the second defendant and the first defendant consented in writing to the deceased acting otherwise. The second defendant entered into a corresponding obligation to ensure that all property owned by her at her death devolved in the manner set out in the will unless the deceased and the first defendant consented in writing to Lyle [sic] acting otherwise. The reference to Lyle in that clause is clearly a typographical error. The deed contemplated that the deceased and the first defendant would need consent in writing to “Alice” acting otherwise.
Both the deceased and the second defendant agreed forthwith to make a will in the form of the schedule to the deed and both agreed not to revoke or in any way add to or vary their respective wills or make any further will without the written consent of, in the case of the deceased his wife and the first defendant and in the case of the second defendant, the deceased and the first defendant.
The schedules to the deed provided for mirror wills in which the deceased and the second defendant appointed the first defendant to be the executor and trustee of their respective wills. In each case they left the whole of their estate to the other and in each case if the other predeceased the testator or testatrix then the estate passed to the first defendant. The wills provided that if the first defendant should predecease either Lyle or Alice then in that case his children who attained the age of 25 years would take.
The Master said (at para 34):
“It is first necessary to consider the purpose of the Deed. It is clear from the advice given by letter by the solicitor to the parties to the Deed prior to its execution that the purpose of the Deed was to prevent the plaintiff from making a claim under the Act. The purpose of the Deed is reflected in Recitals D and E of the Deed which have been set out earlier in these reasons. As such, for the reasons set out below, I think it is contrary to public policy.”
The Master then considered a decision of the High Court of Lieberman & Anor v Morris (1944) 69 CLR 69 and a decision of a single Judge of this Court in Re Chester, Deceased, (1978) 19 SASR 247.
The Master held that where the purpose of a contract is to preclude a claim which might otherwise be made by a person on the estate of the deceased pursuant to the provisions of the Act, the deed to that extent should be declared to be void.
It was the Master’s opinion that the Act gives effect to a public policy which is centred upon the testators moral duty to the potential claimants under the Act. He held that the Deed should be void as being contrary to public policy.
The cross appellant complained of the Master deciding this matter by reference to the intention of the parties or the purpose for which the Deed was entered into. It was the cross appellant’s complaint that the plaintiff had disavowed any reliance upon the intention of the parties or the purpose for which the Deed was entered into in support of the plaintiff’s claim that the Deed was valid. It was the cross appellant’s contention that the matter proceeded before the Master upon the understanding of the parties that the validity of the Deed fell to be considered by reference to its effect and whether that effect was contrary to public policy which rendered it void.
It was that ground of appeal which the cross appellant amended.
The cross appellant further contended that he had been denied procedural fairness in that the matter had proceeded only upon the question of effect and in those circumstances he had not sought to adduce evidence to rebut the claim that the intention of the parties or the purpose of the Deed rendered the Deed void.
Mr Tilmouth QC, who appeared for the plaintiff at first instance and on appeal, expressly conceded, on the appeal, that it was no part of the plaintiff’s case that the validity of this Deed depended in any way upon the intention of the parties or the purpose for which it was entered into. He conceded that the validity of the Deed had to be determined by reference to the effect of the Deed and in particular its effect upon the plaintiff’s and the claimants’ claim for provision under the Act.
In those circumstances it was not necessary for the cross appellant to further develop his submissions or for this Court to consider those submissions.
The matter therefore proceeded in this Court upon the basis that the plaintiff’s sole contention was that this Deed was void because its effect precluded the plaintiffs’ and the claimants’ seeking and obtaining provision under the Act.
The Act provides statutory rights in respect of the estates of deceased persons. The persons to whom the statutory rights are given are those enumerated in s 6 of the Act. The persons to whom the right is given includes the deceased’s spouse, child, grandchild, parent and siblings. Those persons are entitled, if they had been left without adequate provision for their proper maintenance, education or advancement in life to apply to the Court. The Court may order in its discretion that a provision should be made out of the estate of the deceased for the maintenance, education or advancement of the person so entitled.
Three conditions must be met before an order can be made in favour of a claimant. First the person must be one of those entitled to claim. Secondly that person must have been left without adequate provision for that person’s proper maintenance, education or advancement in life. Thirdly the deceased must have left an estate out of which an order for a provision for the document can be made. If the deceased has left no estate then notwithstanding the person is of the class mentioned in the Act and has been left without adequate provision for that person’s proper maintenance, education or advancement in life that person is without a remedy.
It is therefore necessary for the plaintiff and the claimant’s claim under the Act to succeed that they can identify some estate left by the deceased to which a provision can be attached.
Section 9 of the Act provides for orders which may be made for the maintenance, education or advancement of any person out of the estate of a deceased person. The orders must inter alia:
“(a) Specify the amount and nature of the provision thereby made;
(b)Specify the part or parts of the estate of the deceased person out of which that provision shall be raised or paid, and prescribe the manner of raising and paying that provision;
and
(c) State the conditions, restrictions or limitations imposed by the Court.”
Section 9(4) provides:
“(4)The Court shall, in every case in which an order is made, direct that a certified copy of the order be made upon the probate of the will, or letters of administration of the estate, of the deceased person, and for that purpose may require the production of the probate or letters of administration.”
Section 9(7) provides:
“(7)Upon any order being made under this Act, the portion of the estate affected by the order shall be held subject to the provisions of the order.”
Section 9 reinforces the point earlier made. Any provision must be made out of the estate of the deceased person. Part or parts of the estate of the deceased person are liable to be the subject of an order under s 9.
Section 10 provides that any order made under section 9 shall operate and take effect as if it had been made:
“(a)If the deceased person died leaving a will, by a codicil to that will executed immediately before his death; or
(b)if the deceased person died intestate, by a will executed immediately before his death.”
The order therefore is to have the effect of a codicil executed immediately before the death of the deceased person.
There are good and obvious reasons why sections 9 and 10 are in their form. First the orders made by the Court have the effect of overriding or negating any previous dispositions by the deceased in the deceased’s will. Secondly the Court has a complete discretion to make the order operate upon all parts of the estate. Thirdly by deeming the order to act as a codicil, provision can be made out of any part of the estate of the deceased including that part of the estate which has been distributed after the deceased’s death and before the order is made.
The purpose of the Act, and like Acts in other jurisdictions, is to provide for persons whom the deceased should have had in contemplation at the time of making his or her will. It provides that the class of persons referred to in the Act are persons who should be in the contemplation of the deceased and for whom the deceased has a moral obligation to ensure are the subject of adequate disposition if an estate is available to meet their maintenance, education or advancement in life. It is those persons mentioned in s 9 for whom the deceased should have had regard when disposing of his estate by his will to ensure they had adequate provision for their proper maintenance, education or advancement in life.
In Lieberman v Morris (supra) Rich J said at 85:
“But the evident purpose of this legislation in general, and that of New South Wales in particular, is quite different, that of providing for the proper maintenance, education or advancement of members of a family who would otherwise be left without adequate provision, and might, in many cases, become a charge on the community. It is for this purpose, and this alone, that members of a family are invested with the right to invoke the exercise by the court of its discretion. I think that the Act now in question is designed to serve a public purpose as well as that of benefiting individuals, the purpose being, as it was put by the Privy Council in Dillon v Public Trustee of New Zealand [1941] AC 294 at pp 303, 304, ‘to secure, on grounds of public policy, that a man who dies, leaving an estate which he distributes by will, shall not be permitted to leave widow and children inadequately provided for.’ ”
In the same case Williams J, after referring to Dillon v Public Trustee Of New Zealand [1941] AC 294 said at 91:
“The Act therefore places an important limitation upon the right of a testator to dispose of his property by will in any manner that he may think fit. It makes the operation of his testamentary dispositions defeasible to the extent required to give effect to the purposes of the Act. The only real justification for such a statutory intrusion would appear to be that it is in the public interest. The necessity, or at least the desirability, in the public interest, of such legislation, is demonstrated by the way in which, after originating in New Zealand and spreading through the Australian States and territories, it has now been adopted in a modified form in England by the Inheritance (Family Provisions) Act 1938, which is described as an Act ‘to amend the law relating to testamentary dispositions.’ The legislation has analogies to other powers to override proprietary rights conferred upon the courts in the public interest, as, for instance, the powers given to the court to modify or extinguish easements and restrictive covenants conferred by s 89 of the Conveyancing Acts 1919-1943 (NSW) as amended, and to relieve against the forfeiture of leases conferred by s 129 and 130 of that Act.”
There is no doubt that the Act provides a safeguard to those persons who might be overlooked by a deceased person in the disposition of his estate by his will. The Act, however, is not designed to require a person to accumulate assets or indeed to die with an estate. A person is quite entitled to dispose of his or her estate by waste, gift or any other way before that person’s death. The Act, at least in this State, does not provide any protection to the person otherwise entitled if the deceased dies without an estate in those circumstances.
This is not a case where there is any doubt that the parties intended to create legal relationships between themselves. There was clear and satisfactory evidence that both the deceased and the second defendant intended to subject themselves to legally binding obligations to make mutual wills to leave the whole of the estate to each other and for the survivor to leave the whole of his or her then estate to the first defendant.
There was a clear and unequivocal agreement between the parties that they would not revoke their mutual wills. Both the testator and the second defendant agreed that on the death of the first of them the other would be irrevocably bound to the terms of the mutual wills.
The deceased and the second defendant reserved to themselves the right to agree in writing with each other and the first defendant to act otherwise, but that is the only circumstance where the agreement to make mutual wills could be varied or revoked. No such agreement ever occurred.
Indeed the second defendant continues to assert that she is bound by the terms of the Deed and must dispose of her estate on her death in the terms of her will executed on 2 May 1996.
Whilst a Deed to make mutual wills becomes irrevocable upon the death of one of the parties that does not prevent the surviving party leaving a will which contains provisions inconsistent with the agreement. That will, even though inconsistent with the terms of the Deed, remains a valid will and must be admitted to probate: Birmingham v Renfrew (1937) 57 CLR 666 at 683.
However, the irrevocable obligation contained in the Deed is otherwise enforceable.
There is nothing new about the concept of mutual wills. Nor are contracts to make wills either modern or unusual.[1]
[1] Sherrin, C.H., “Contracts to Make Wills”, (1972) The New Law Journal 576
Covenants to make mutual wills, and contracts to make wills of a kind are entered into for a number of reasons. An obvious reason is to protect the children of a marriage in the event that one or other of the spouses remarries on the death of the other spouse.
There are, of course, difficulties when entering into obligations of that kind. It constrains the surviving spouse from dealing with both the estate which he or she has inherited and their estate otherwise than in accordance with the will into which he or she has agreed to enter. It thereby not only prevents them dealing with the assets which were known to exist at the time that the covenant was entered into, and even at the time of the death of the first spouse, but also any property which the surviving spouse acquires during his or her lifetime, whether before or after the death of the other spouse. The end result might mean that the surviving spouse is subject to considerable hardship.
However, it cannot be doubted that agreement to make mutual wills and agreements to dispose of an estate in a particular way are commonly used in estate planning.
The first question to be decided in this case is the effect of a binding contract to make mutual wills and in particular after the death of one, of the party who has agreed to make a will in that form.
Where there has been demonstrated an agreement between parties to make wills which are mutually binding, as in this case, the Court will give effect to such an agreement by recognising, on the death of one of the parties a floating trust both over the estate of the deceased party and the assets of the surviving party. That floating trust is of a kind that does not prevent the surviving party from dealing with any assets which that party might have received from the deceased party and the party’s own assets before death. The floating trust, however, does prevent the second party from dealing with the assets in a manner inconsistent with the overall obligation to leave his or her estate in accordance with the mutual wills agreed upon with the deceased party.
On the death of the second party the trust crystallises as a constructive trust in favour of the devisees or beneficiaries named in the will.
In Birmingham v Renfrew (supra) Dixon J spoke at 682 of the testator’s obligations:
“The contract bound him, I think, during her lifetime not to revoke his will without notice to her. If she died without altering her will, then he was bound after her death not to revoke his will at all. She on her part afforded the consideration for his promise by making her will. His obligation not to revoke his will during her life without notice to her is to be implied. For I think the express promise should be understood as meaning that if she died leaving her will unrevoked then he would not revoke his. But the agreement really assumes that neither party will alter his or her will without the knowledge of the other. It has long been established that a contract between persons to make corresponding wills gives rise to equitable obligations when one acts on the faith of such an agreement and dies leaving his will unrevoked so that the other takes property under its dispositions. It operates to impose upon the survivor an obligation regarded as specifically enforceable. It is true that he cannot be compelled to make and leave unrevoked a testamentary document and if he dies leaving a last will containing provisions inconsistent with his agreement it is never the less valid as a testamentary act. But the doctrines of equity attach the obligation to the property. The effect is, I think, that the survivor becomes a constructive trustee and the terms of the trust are those of the will which he undertook would be his last will.”
Dixon J said further at 687:
“But the point he actually makes is that the equitable obligation to fulfil the contract attaches to the property the subject of the contract and converts the party into a trustee for the objects to be benefited. It must not be forgotten that Lord Thurlow was able to say (Legard v Hodges (1792) 1 Ves. Jun. 477 at p 478) that it was a maxim which he took to be universal that ‘wherever persons agree concerning any particular subject, that in a court of equity as against the party himself, and any claiming under him voluntarily or with notice, raises a trust.’ The application of this view to contracts for ‘mutual’ or corresponding wills is effected by the second of the considerations to which I have referred as combining to give rise to the equities in question. That consideration consists in the death of one of the parties leaving a will in the form agreed. The result is a disposition of property made upon the faith of the survivor’s carrying out the obligations of his contract. It is an element which brings such a case under the equitable jurisdiction for the prevention of fraud.”
In Birmingham v Renfrew Dixon J recognised that the agreement to make mutual wills did not prevent the surviving spouse (as it was in that case) from dealing with the property during that spouse’s lifetime. Dixon J, however, said at 690:
“But I do not see any difficulty in modern equity in attaching to the assets a constructive trust which allowed the survivor to enjoy the property subject to a fiduciary duty which, so to speak, crystallised on his death and disabled him only from voluntary dispositions inter vivos. On the contrary, as I have said, it seems rather to provide a reason for the intervention of equity. The objection that the intended beneficiaries could not enforce a contract is met by the fact that a constructive trust arises from the contract and the fact that testamentary dispositions made upon the faith of it have taken effect. It is the constructive trust and not the contract that they are entitled to enforce.”
That statement of the law was approved in Re Cleaver (Deceased) [1981] 2 All ER 1018. It was further approved by Carnwath J in Re Goodchild (Deceased) [1996] 1 All ER 670. At 676 Carnwath J said:
“Thus, it seems clear that the enforceability of the mutual agreement depends, not on the continued existence of the formal will as such, but on a species of trust which is held binding in equity, notwithstanding the revocation of the will. It is an unusual form of trust, since it does not prevent the surviving testator using the assets during his lifetime. It is ‘a kind of floating trust which finally attaches to such property as he leaves upon his death’ (see 57 CLR 666 at 675 per Latham J). Dixon J put it in similar terms in the same case (at 689):
‘It is only by the special doctrines of equity that such a floating obligation, suspended, so to speak, during the lifetime of the survivor can descend upon the assets at his death and crystallise into a trust. No doubt gifts and settlements, inter vivos if calculated to defeat the intention of the compact, could not be made by the survivor and his right of disposition, inter vivos, is, therefore, not unqualified. But, substantially, the purpose of the arrangement will often be to allow full enjoyment for the survivor’s own benefit and advantage upon condition that at his death the residue shall pass as arranged.’ ”
At 678 Carnwath J said:
“To conclude, if a clear agreement can be found, in the wills or elsewhere, that they are to be mutually binding, (whether or not that is expressed in language of revocation), the law will give effect to that intention by way of a “floating trust”, which becomes irrevocable following the death of the first testator and crystallises on the death of the second.”
That decision was approved by the Court of Appeal in Re Goodchild (Deceased) [1997] 3 All ER 63. In particular in the Court of Appeal Leggatt LJ with whom Morritt and Phillips LJJ agreed, approved the last mentioned dictum of Carnworth J.
In my opinion, in the circumstances of this case, where there is no doubt that the plaintiff and the second defendant intended to be bound by the obligations contained in the Deed of 2 May 1996, after the death of the deceased an irrevocable floating trust arose, which will crystallise on the death of the second defendant.
The second defendant is entitled to use the assets which she received by disposition in the deceased’s will, during her lifetime. She cannot, however, dispose of these assets so as to defeat the agreement to which she became irrevocably bound, upon the death of the deceased. Those assets, and indeed hers, are presently subject to a floating trust which will crystallise on her death.
I think it is clear that if she were to die the assets which she received and her assets, being subject to a trust in favour of the first defendant by reason of the terms of the Deed, and of the wills made pursuant to the Deed, would not form part of her estate. All of her assets on her death would crystallise in a trust in the terms of the will made on 2 May 1996. There would be no assets which might be the subject of an order for provision under the Act.
The question remains whether the deceased’s assets, which are subject to the floating trust, form part of his estate or whether because of the floating trust he died without an estate.
The floating trust did not arise until his death. If an order was made under the provisions of the Act it would operate as a codicil as if made immediately before his death.
In those circumstances Mr Tilmouth QC argued that whether a floating trust arose or not it could not defeat a claim under the Act because the codical operated before the trust arose.
In Dillon v Public Trustee Of New Zealand (supra) the testator agreed that one of his sons would manage his farmlands and another of his sons would devote the whole of his time as a general hand, and that the testator would by his will devise the farmlands to his trustees upon trust for one of his sons and his two daughters subject to a charge in favour of a third daughter.
Subsequent to that agreement the testator married a second time. There was no issue of that marriage. The testator, however, executed a will by which he devised and bequeathed his farmlands which were the subject of the previous contract and, of course, previous will, to his second wife. At his death the farmlands the subject matter of the contract, amounted to about 70 per cent of his estate.
His wife sought a provision under the equivalent legislation to our Act for further provision out of the estate and an order was made in the Supreme Court Of New Zealand in her favour. The testator’s children appealed but the Court of Appeal in New Zealand held that as the provision in the will for the children was made in fulfilment of a contract for valuable consideration the Court had no jurisdiction to make an order under the Act, which would cut down what the testator had in fulfilment of his promise left to his children.
The second wife appealed to the Privy Council. Their Lordships said at 301:
“Their Lordships cannot regard it as a correct exposition of s 33 of the Family Protection Act to say that it imposes on a husband the obligation to make adequate testamentary provision for the maintenance and support of his wife. The statute does not impose any duty to frame a will in any particular way, and the testator did not fail to observe any statutory obligation by making his will as he did. What the statute does is to confer on the court a discretionary jurisdiction to override what would otherwise be the operation of a will by ordering that additional provision should be made for certain relations out of the testator’s estate, notwithstanding the provisions which the will actually contains. If the testator does not make adequate provision in his will for wife, husband, or children, he does not thereby offend against any legal duty imposed by the statute. His will-making power remains unrestricted, but the statute in such a case authorizes the court to interpose and carve out of his estate what amounts to adequate provision for these relations if they are not sufficiently provided for. The interposition of the court should take place, of course, only after considering all relevant circumstances, and among these circumstances may be the fact that the testator was under obligation to third parties.”
They went on to say at 302-303:
“The children, whose benefits under their father’s will were thus reduced, appealed to the Court of Appeal in New Zealand on the ground that Northcroft J’s judgment “is erroneous in “fact and law.” Myers CJ and Ostler J took the view that, inasmuch as the provision in the will for the children was made in fulfilment of a contract for valuable consideration contained in clause 17 of the agreement, the court had no jurisdiction to make an order under s 33 of the Family Protection Act which, for the purpose of increasing the widow’s share, would cut down what the testator had, in fulfilment of his promise, left to his children. Their Lordships cannot accept this view. Myers CJ truly observed that if Henry Dillon, senior, had transferred his lands to his children during his lifetime, the Family Protection Act could not operate upon them. This is plainly the case, for s 33 of the Act only applies if the testator dies leaving a will without making adequate provision therein for the proper maintenance and support of the testator’s wife, etc. If these conditions are fulfilled, the court has jurisdiction, at its discretion, to order that such additional provision as the court thinks fit shall be made for the inadequately provided wife out of the testator’s estate. There can be no dispute or doubt that the lands left to the children form part of the testator’s estate, and the children are bound to accept the position that the provision made for them is liable to be reduced by order of the court in favour of their stepmother, unless, indeed, their claim on the estate could be regarded as constituting a debt which has to be discharged before benefits are distributed. But these devisees are not creditors of the estate. They are beneficiaries under the will. There is nothing in the nature of a debt owing to the children from the testator’s estate. The testator has done what he contracted to do, namely, to make the testamentary provisions defined in clause 17 of the agreement. The testator is under no reproach in the matter at all. His will duly provides for the fulfilment of his contract with his children and gives all that is left for distribution to their stepmother. But the contract cannot oust the jurisdiction of the court, and there is nothing in s 33 of the Family Protection Act which restricts the court’s power to re-distribute the estate in cases where provisions in the will are a fulfilment of a contract entered into inter vivos.”
That case was reconsidered by the Privy Council on an appeal from the Supreme Court Of New South Wales in Schaefer v Schuhmann [1972] AC 572.
In that case the testator made a codicil to his will. In that codicil he left his house to the appellant on the condition that she was still his housekeeper at the date of his death. From that date until the testator’s death she received no wages but performed her obligations as a housekeeper.
The testator made other provisions in his will for his three sons and four daughters.
The will was proved. The four daughters made application under the Testator’s Family and Maintenance and Guardianship of Infants Act 1916-1954 (NSW) claiming that the testator had failed to make adequate provision for their proper maintenance.
The Court considered the financial circumstances of the applicants and held that three of them had made out a case for relief under the Act. The appellant did not dispute that the testator had failed to make adequate provision for the three daughters. The Court ordered that the legacies to those three be increased and that the burden of the increase of the legacies be met partly by and be a charge on the property devised to the appellant.
The appellant contended that the Court had no jurisdiction to throw any of the burden of the orders in favour of the three daughters upon the property given to her. She argued that the whole of the burden should come out of the residual estate left to the three sons.
It was the appellant’s contention that an order under the Act could not override or destroy equitable proprietary rights required by a third person under a contract in which the deceased promised to leave property to such person by a will.
The New South Wales Act at the time contained no definition of ‘estate’. In that regard it does not differ from the Act in this State.
Two advices were delivered. The majority advice was delivered by Lord Cross of Chelsea. A separate dissenting advice was delivered by Lord Simon of Glaisdale.
The majority observed that there was no definition of estate. They reasoned that the estate could not mean the gross estate passing to the executor, but must be confined to the nett estate available to answer the dispositions made by the will. They then said at 585:
“Again if one reads the section without having in mind the particular problem created by dispositions made in pursuance of previous contracts the language suggests that what the Court is given power to do is to make such provision for members of the testator’s family as the testator ought to have made, and could have made, but failed to make. The view that the court is not being given power to do something which the testator could not effectually have done himself receives strong support from section 4(1) which says that a provision made under the Act is to operate and take effect as if it had been made by a codicil executed by the testator immediately before his death.”
The majority of the Board preferred the decision of the Full Court of Tasmania in Re Richardson’s Estate (1935) 29 Tas LR 149 to that of the previous decision of the Board in Dillon v Public Trustee Of New Zealand (supra), which it described as clearly out of line with the body of authority culminating in Re Richardson’s Estate.
In the end result the majority said at 592:
“The question whether contracts made by a testator not with a view to excluding the jurisdiction of the court under the Act but in the normal course of arranging his affairs in his lifetime should be liable to be wholly or partially set aside by the court under legislation of this character is a question of social policy upon which different people may reasonably take different views. In this connection it is not without interest to observe that by the Law Reform (Testamentary Promises) Acts 1944 and 1949 the New Zealand legislature has itself enacted provisions designed to protect persons who have rendered services to testators in reliance on promises on their part which have not been honoured to leave them benefits by will. If and so far as it is thought desirable that the courts of any country should have power to interfere with testamentary dispositions made in pursuance of bona fide contracts to make them, it is, their Lordships think, better that such a power should be given by legislation deliberately framed with that end in view rather than by placing of a construction on legislation couched in the form of that under consideration in this case which results in such astonishing anomalies, as flow from the decision of Dillon v Public Trustee Of New Zealand [1941] AC 294.”
Lord Simon of Glaisdale dissented. In his opinion the claimed statutory rights had to be considered along with the deceased’s contractual obligations and the equitable rights arising thereunder.
He accepted the headnote in Dillon to the effect at 597:
“The Court, in considering how its discretion should be exercised and how far it is just and necessary to modify the provisions of a will, will pay regard to the circumstances in which the will is drawn as it is, to the interests of the members of the family and to all relevant circumstances, among which may be the fact that the testator was under obligation to a third party.”
The majority in Schaefer v Schuhmann (supra) accepted the reasoning of the Full Court of the Supreme Court of Tasmania in Re Richardson’s Estate (supra) and in particular approved the dictum of Nicholls CJ at 155.
In that case the testator and his housekeeper had agreed to make mutual wills in favour of each other. By his will the testator left the whole of his estate to his housekeeper. At his death he left a widow from whom he had been separated for thirty years. His widow was receiving maintenance from him at his death. He also left a daughter. The testator’s widow and his daughter made application under the Testator’s Family Maintenance Act 1912 for an order directing provision to be made for the amount of the estate of the deceased for their maintenance and support.
There is no relevant distinction between the Tasmanian legislation and the Act.
On appeal Nicholls CJ said at 155:
“All that I propose to add to what I already have said on this case, is that the respondent’s rights do not arise under the will. They arise contractually and exist independently of the will. If the testator had made no will, or had made a will leaving everything to his widow and daughter, he would have made a breach of his contract with the respondent. She then could have sued for damages for the breach, and the measure of her damages would have been the value of the testator’s estate. Her status afterwards would have been that of a judgment creditor.
It is true that the performance of the contract was to be, and actually was, in the form of a will, but, as is proved by the fact that it prevents a cause of action for breach arising, the will operates as of the performance of the contract, not as bounty, as it would in the ordinary case of a testator giving, by way of a free gift, property which he had the right to dispose of as he pleased. As against the respondent, he had no right to leave his property to his widow and child. Any interference with the respondent’s rights now, must amount to wholly or partially setting aside the contract. What we are asked to do is to reduce contractual rights to the level of gifts under a will, and to make the performance of the contract the reason why we can prevent its full performance, and to do that by an order which by Section 9 will take effect as if it were a codicil, which as a fact the testator had no right to make.”
He said further:
“ ‘The Testator’s Family Maintenance Act’ is based solely upon the supposition that a free testator has chosen to deprive his wife or children of what he was at liberty to leave to them and upon which they have some moral claim for maintenance. In such a case the Court is given a discretion to do what the testator could and should have done, but no more.”
In my opinion, the authorities are clear. Agreements to make mutual wills have the effect of disentitling any other person who is not provided for in the will from making a claim under the Act.
The Deed has exactly the effect for which all parties contended, that is it prevents the plaintiff and the claimants, in this case, bringing a claim under the Act. A contractual promise to make mutual wills operates as a debt due by the estate of each of the parties. It is not testamentary. That has been recognised by a number of commentators[2].
[2]Hutley, F.C., Hutley’s Australian Wills Precedents, 5th edition, Butterworths, Sydney, 1994, para 1402-1405.
Hardingham, I, “Schaefer v Schuhmann: Promisee v Dependant”, (1972) 10 West Aust Law Rev 115.
Eddes J, “Protecting the Next Generation’s Inheritance” (1995) Law Soc Jo (NSW) 60.
The agreements are not void, in my opinion, as being contrary to public policy for the reasons identified by the majority in Schaefer v Schuhmann (supra).
The remedy is with the legislature.
Indeed in New South Wales, the New South Wales Parliament enacted legislation following the decision in Schaefer v Schuhmann (supra) to guard against the result. The New South Wales Parliament has provided for prescribed transactions which includes contracts providing for a disposition of property out of the person’s estate. The Court is empowered to have regard to those prescribed transactions and may make an order designating such property, as the Court may specify, as notional estate of the deceased person, which is held by or on trust for the testator. The Court can order that provision be made out of that notional estate.
The English Parliament has also legislated in relation to dispositions which are intended to defeat applications for financial provision under the Inheritance (Provision for Family and Dependants) Act 1975.
In my opinion, the Deed is not contrary to public policy. It is therefore not void.
I would allow the appeal and set aside the declaration and order made by the Master. In lieu thereof I would make a declaration in the following terms:
“The Deed between Lyle Phillip Barns (deceased) and Alice Elizabeth Barns and Malcolm Phillip Barns dated 2 May 1996 is valid.”
WICKS J I agree with the declaration and order proposed by Lander J and with his reasons.
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