Laycock & Anor v Ingram & Ors
[2008] VSC 113
•14 April 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5225 of 2008
IN THE MATTER of an application under Order 54 of the Supreme Court (General Civil Procedure) Rules 2005
and
IN THE MATTER of the will codicil and estate of MARY WESTWOOD LAYCOCK
B E T W E E N
| ANDREW WALTER LAYCOCK and CHARLES WALTER LAYCOCK (who sue as executors of the will and codicil of the Deceased) | Plaintiffs |
| And | |
| JEANETTE WESTWOOD INGRAM, FIONA WESTWOOD LUTH, ALISTAIR RALSTON INGRAM, ANGUS CHARLES INGRAM | Defendants |
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JUDGE: | SMITH J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2 April 2008 | |
DATE OF JUDGMENT: | 14 April 2008 | |
CASE MAY BE CITED AS: | Laycock v Ingram & Ors | |
MEDIUM NEUTRAL CITATION: | [2008] VSC 113 | |
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WILL – beneficiaries with divestible interests - Instruction to distribute – Saunders v Vautier.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr W Rimmer | Charles B G Brett |
| For the Defendants | Mr Richard Boaden | Linton R Lethlean |
HIS HONOUR:
The proceeding
By originating motion filed 18 March 2003 the plaintiffs, as executors of the will and codicil of the deceased, Mary Westwood Laycock, seek the following relief:
“The plaintiffs seek an answer to the following question which has arisen in the course of the administration of the deceased’s estate in relation to the one-third of the residue of the deceased estate held by the plaintiffs under clause 1 of the codicil dated 18 October 1994 to the will of the deceased dated 11 May 1978 (the Jeanette Ingram share):
On the true construction of the will of the deceased dated 11 May 1978 and the codicil of that will dated 18 October 1994 and having regard to the rule in Saunders v Vautier (1841) Cr and Ph 240; [1835-42] AllER 58; (1841) 41 ER 482, if the plaintiffs receive a joint direction from all of the defendants to distribute the Jeanette Ingram share to the second third and fourth defendants as tenants in common in equal shares absolutely, will the plaintiffs be obliged to comply with that direction?”
The issues
Mary Westwood Laycock was born on 26 February 1913 and died on 15 June 2005. Her husband predeceased her. She was survived by three children, Andrew Laycock (born 1940), Jeanette Ingram (born 1943) and Charles Laycock (born 1950). Jeanette Ingram is married and has three children, being her co-defendants Fiona, Alistair and Angus, who were born respectively in 1973, 1977 and 1982. They are of full age and capacity.
Pursuant to a will made 11 May 1978, Mrs Laycock left her estate to be held on trust to pay the income to her husband during his life and the remainder to be divided equally among her three children, the plaintiffs Andrew, and Charles Laycock, and the defendant Jeanette Ingram. On 18 October 1994, however, Mrs Laycock amended her will by executing a codicil. It was in the following terms:
(a)UPON TRUST to invest [Jeanette Ingram’s share] in any manner authorized by my said Will and to pay the net income of my daughter’s share to my daughter during her life
(b)unless and until she shall either during my life or after my death have committed permitted or suffered any act default or process of law (other than a consent to an advancement under any statutory or express power) whereby or by means whereof such income or any part thereof if belonging to her absolutely would but for this provision have become payable to or charged in favour of some other person or persons or corporation
(c)and I declare that my Trustees shall not be liable for paying the said income or any part thereof to my daughter after the failure during her life of the aforesaid trust in her favour unless prior to paying the same my Trustees shall have received express notice of the event which shall cause such failure or determination
(d)AND after the failure or determination during the life of my daughter of the Trusts, as to such income hereinbefore declared in her favour
(e)UPON TRUST during the remainder of the life of my daughter to pay or apply the net income of my daughter’s share or such part or parts thereof as my Trustees in their discretion shall from time to time think proper to or for the benefit maintenance and support of all or any one or more exclusively of the others or other of the following persons namely
my daughter
her child or children (if any)
her issue (if any); and
the person or persons (exclusive of any husband or former husband of hers) who would, if she were actually dead be entitled to my daughter’s share or any part thereof or any interest therein under the Trusts of my will
(f)in such shares and proportions or amounts and in such manner as my Trustees in their discretion shall think fit
(g)AND my Trustees shall accumulate the remainder (if any) of such income not so paid or applied …
(h)and after the death of my daughter my Trustees shall hold my daughter’s share and all such accumulations upon trust as to capital as well as income for her issue who before the expiration of a period of 21 years after her death attain the age of 21 in equal shares
(i)if more than one issue more remote than a child of my daughter to take only in the event of the death of his or her or their parent without attaining a vested interest and then only in the place of such parent
(j)but should there be no issue of my daughter who attain a vested interest under the last preceding Trust then my daughter’s share and any accretions thereto shall accrue and [be] added to and held upon the Trusts concerning the other share or shares in my Residuary Estate the trusts concerning which shall not have failed and (if more than one) then in the proportions which those other shares bear to each other.”
The effect of the codicil was to create a life interest for Jeanette Ingram in the income from a third of the estate, unless she committed, permitted or suffered any act or default or process of law whereby, if the income had belonged to her absolutely, it would, but for the codicil provision, have become payable to or charged in favour of some other person (for example on bankruptcy or under an order by the Family Court). In such circumstances, the life interest was to terminate and to be replaced by a trust to operate during the remainder of her life under which the trustees had a discretion to pay such part or parts of the net income of the one third share to her or her children or grandchildren or to any person (excluding any husband or former husband) who would be entitled to her share or any part thereof if she had died. The codicil also provided that upon her death, the third share was to be divided equally among her “issue” who attain the age of 21 years before the expiration of 21 years after her death. As to “issue” more remote than a child of Jeanette Ingram, for example a grandchild, they had an entitlement if their parent died without attaining a vested interest and then would take only in the place of such parent. There was a further provision that if there were no issue of Jeanette Ingram who attained a vested interest under the last trust, then the one third share and any accretions thereto were to be held upon the trust concerning the share or shares of the residuary estate, the trusts concerning which shall not have failed and (if more than one) in the proportions which those other shares bear to each other.
It appears that of Jeanette Ingram’s three children, her daughter, who is now 34 years old, has two children, Holly born on 19 February 2004 and Sam born 20 November 2006. The third defendant is now aged 30, the fourth defendant is aged 26. Neither has children at present.
The question that has arisen in the course of the administration of the estate is whether Jeanette Westwood Ingram and her three adult children are entitled under the rule in Saunders v Vautier to direct the plaintiffs, as trustees of the will, to wind up the trust of her one-third share of the residue of the estate and distribute it as they direct.
It is common ground that Ms Ingram and her three adult children together constitute the only persons with current vested interests in her share of the estate and that, together, they constitute the only persons for whom that share is currently held by the plaintiff. It is also common ground that
· Ms Ingram might lose her vested entitlement to the income, and
· The three children of Ms Ingram have current vested interests in the remainder subject to being divested if they die before the date of distribution provided for in the codicil.[1]
Those propositions appear to be correct. It is also common ground that Ms Ingram and her three adult children are sui juris and that Ms Ingram is beyond child bearing age so that the class of her children is now closed.
[1]Tompkins v Simmons (1930) 44 CLR 546 and Collins v Equity Trustees Executors & Agency Co Ltd [1997] 2 VR 166.
Submissions for the Defendants
Counsel for the defendants submitted that under the rule in Saunders v Vautier[2], where all the beneficiaries under a trust are of full age and capacity, they may terminate the trust by requiring the trustee to transfer the assets either to them, or to others in accordance with their joint and unanimous direction. Between them they must hold the entire beneficial interest in the trust’s estate and they must be of full age and capacity. Counsel submitted that Ms Ingram and her three children are of full age and capacity and that they all have vested interest in the corpus and between them are entitled to the entire beneficial interest in the one-third share, which is held on trust for her and for them. Reliance is placed upon the following passage cited in Ford and Lee “Principles of the Law of Trusts”[3]
“Where all the beneficiaries under a trust are of full age and capacity the rule … is that they may by agreement terminate the trust by requiring the trustee to transfer the assets to them or by their discretion. This rule is a product of the view that the trust exists for the benefit of the beneficiaries and that once they are all of full age and capacity, since the fund is theirs, they may do with it as they please.”
[2]Above.
[3]Paragraph 1610. (edition not identified).
Counsel put that consistently with the decision in Tompkins v Simmons and Collins v Equity Trustees Executors & Agency Co Ltd[4] the analysis of the interest held by Ms Ingram’s three children is that they currently have interests in remainder which are vested, albeit subject to being divested if they die before the period of distribution. Thus, at the moment, they and their mother collectively have the entire beneficial interest vested in them. Counsel submitted that, as was illustrated in Collins v Equity Trustees Executors and Agency Co Ltd[5], if the trust were a simple trust, and Ms Ingram were to surrender her life interest now, that action would immediately accelerate the remainder into the possession of the three existing remaindermen. The possibility that, if the trust had remained on foot, others might, in changed circumstances, later become entitled to a share of the remainder would not prevent the capital from being distributed now to those persons entitled to the entirety on termination of the life interest. Counsel submitted that, because Ms Ingram will have no further issue and because her issue have reached the age of 21, the fund held on trust to pay income to her during her life and to distribute the remainder to her issue who reached the age of 21 is now held on trust to pay the income to her and on her death to pay the capital to her three children. It is not held on trust to pay the capital in remainder to anyone other than her children. They have an exclusive entitlement to the whole of the fund and will have vested interest in it. Counsel submitted that the fact that in the future one of Ms Ingram’s children might predecease her with the result that the grandchildren of that child would take in substitution does not mean that the trust has to be administered having regard to such a contingent future possibility. If the trust were to be wound up now, the issue would be whether such contingencies were operating now and so affecting the decision as to which beneficiaries are entitled to the whole, not which might be in some future time.
[4]Above.
[5]Above.
Submissions for the Plaintiffs
As is common ground, if Ms Ingram were to surrender her life interest, then the interest in remainder would vest in possession in the three children. It is not desired to follow that course, apparently, because that approach would have adverse capital gains tax consequences. Rather what is contemplated is that Ms Ingram and her children give a joint direction to the trustees to distribute her share to them collectively.
The plaintiffs, on the other hand, submit that the question raised should be answered in the negative but will, of course, comply with any direction from the Court. Counsel submitted on their behalf that the rule in Sauders v Vautier does not apply because it requires that the interests vested in the sui juris beneficiaries be absolute and indefeasible. Counsel submitted that Ms Ingram’s interest, while vested in possession, remained defeasible during her lifetime if one of the disqualifying events referred to in the codicil were to occur. In that event the vested interest in the income would fail and the discretionary trust would come into existence for the rest of her lifetime. As to her children, they only take possession of their vested interests in remainder if they meet the qualifying conditions. If one dies before distribution of the remainder, then the issue of that person will take that person’s share in his or her place. Counsel submitted that there are therefore contingent interests in remainder which are not yet ascertained.
Counsel for the plaintiff referred to a recent consideration of the rule in Saunders v Vautier by the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue.[6] The High Court in a unanimous judgment cited the following passage from the text, Thomas on Powers,[7] with approval
[6](2005) 224 CLR 98, at 119.
[7](1998) at 176.
“Under the rule in Saunders v Vautier, an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation.”
Counsel also relied upon another passage cited in that same decision from the judgment of Mummery LJ in Golding v James[8] to the following effect:
“The principle recognises the rights of beneficiaries, who are sui juris and together absolutely entitled to the trust property, to exercise their proprietary rights to overbear and defeat the intention of a testator or settlor to subject property to the continuing trust, powers and limitations of a will or trust instrument.”
Counsel submitted that the rule allows the intention of the testator to be defeated but only where all the beneficiaries are sui juris and between them hold vested indefeasible interests in the trust property. Counsel also relied upon the decision of Miles CJ In the Estate of Lee; Perpetual Trustee Co (Canberra) Ltd v Basker[9] where Miles CJ stated that[10]
”The better view was that the rule in Saunders v Vautier may be avoided either by the creation of an intervening discretionary trust or by provision for gift over in the event of a contingency taking place. Such contingency may include the death of the donee or legatee.”
[8][1997] 2 AllER 239, at 247.
[9](1986) 84 FLR 268.
[10]At 271.
Counsel submitted that the authorities relied upon by counsel for the respondents, Tompkins v Simmons and Collins v Equity Trustees Executors & Agency Co Ltd do not assist in this case. Counsel submitted they were cases which were concerned with the operation of the relevant will where certain events had occurred having the effect that all remaining beneficiaries thereafter held vested interests, the contingency on which the vesting of the interests depended having occurred. Thus the courts recognised that the remainder interests would be accelerated into possession and thus vest absolutely, for example, where the life tenant surrendered the life interest whilst still alive. In that situation the trust fund can be distributed even though, prior to the surrender, relevant interests were defeasible. In that situation, however, counsel submitted that the distributions to remaindermen occurred in accordance with the will not in defiance of it.
Analysis
The argument advanced by Counsel for the defendants is that the right to bring the trust to an end must be looked at at the time of the attempted termination and in light of the circumstances then existing. It is argued that, at that time, those with vested interests in the estate, that had not been divested, can by agreement terminate the trusts provided they are sui juris notwithstanding that their interests are divestible and there are contingent beneficiaries, and possible future contingent beneficiaries, who would benefit should events occur which would result in the vested interests being divested.
In Saunders v Vautier, the Court looked at the nature of the interest of the person seeking to terminate the trust, and the circumstances, at the time of the application. In that case, the Testator Richard Wright, left East India stock to Daniel Wright of Vautier subject to a trust to accumulate the income from the stock until he attained 25 years. The accumulated income and stock were then to be transferred to him absolutely. There were no other persons entitled to the stock or income, no divesting events and no persons contingently entitled should Vautier die before attaining 25 years. He was held to have an absolute indefeasible interest in the legacy and was entitled to require its transfer as soon as he was sui juris.
As the High Court has stated, what the rule in Saunders v Vautier requires, is that at the time the issue is considered, all beneficiaries participate in the termination of the trusts and for that to occur successfully, all must have between them absolute vested and indefeasible interests and be sui juris. Only then can the testatrix’s wishes be defeated by an agreement between the beneficiaries. Those requirements are not satisfied by the proposal of the defendants.[11] The proposed participants, while sui juris, do not have between them absolute vested indefeasible interests.
[11]See also the important analysis of Miles CJ in the Estate of Lee (1986) 84 FLR 268,271.where gifts over-prevented the application of Saunders v Vautier. See also Ford & Lee, Principals of the Law of Trusts (2006) – (Update: 45), [16090] – [16110] and Vassella v Fryer [1999] QSC 388.
I raised with counsel for the defendants whether the proposed direction involved an implied surrender of the life interest of Ms Ingram and, if so, whether what was proposed came within Collins v Equity Trustees Executors Agency Co Limited. Counsel was adamant, however, that that was not the case put forward and that what was proposed did not involve a surrender.
Conclusion
In the above circumstances, the rule in Saunders v Vautier cannot assist the defendant. The question asked should be answered in the negative.
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