Permanent Trustee Co Ltd v The Northcott Society and Ors

[1999] NSWSC 742

CITATION:	Permanent Trustee Co Ltd v The Northcott Society & Ors [1999] NSWSC 742
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	2738/98
HEARING DATE(S):	14/07/99
JUDGMENT DATE:	14 July 1999
PARTIES :	Permanent Trustee Co Limited (P) The Northcott Society (D1) Pamela Eloise Irvine (D2) Julia Phyllis Lester (D3) Anna Nash Lester (D4)
JUDGMENT OF:	Young J

COUNSEL :	M S Willmott (P) S Winters (D2) R Page (D3 & 4)
SOLICITORS:	Windeyer Dibbs (P) Andrea Wilson & Associates (D2) Greaves Wannan & Williams (D3 & 4)
CATCHWORDS:	Succession [202]- Wills- Construction- Gift over if trust fails- Whether a residuary gift
CASES CITED:	Berry v Geen [1938] AC 575 CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 Cowan v Larkman (1888) 60 LT 1 Re Doland's Will Trusts [1970] Ch 267 Re Edwards [1906] 1 Ch 570 Re Harrison (1885) 30 Ch D 390 Hatton v May (1876) 3 Ch D 148 Ingram v Ingram (1938) 38 SR (NSW) 407 Re Mabbett [1891] 1 Ch 707 Re Pennington [1972] VR 869 Thomson's Trustees v Thomson [1946] SLT 339
DECISION:	See paras 39 and 40

THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG, J

WEDNESDAY 14 JULY 1999

2738/98 - PERMANENT TRUSTEE CO LTD V THE NORTHCOTT SOCIETY & ORS

JUDGMENT

1    HIS HONOUR : Stanley Clyde Pelzer died on 1 July 1978, having first made and published his last will and testament on 1 December 1971, probate whereof was granted to the plaintiff on 29 November 1978.

2    The will is a strange one in many ways and there is really no alternative but to set out cll 4 to 7 in full:

" 4. I GIVE DEVISE AND BEQUEATH the dwelling house in which I am residing at the time of my death (hereinafter called "my said home") unto my Trustee UPON TRUST

(a) to permit the said SAIDIE ESTELLE GOLD (hereinafter called "the Beneficiary") to reside in my said home for so long as she desires so to do free of any rent or occupation fee, but the Beneficiary being responsible for the payment of all rates, taxes and outgoings in respect of my said home and for keeping my said home in good repair and insured against fire storm and tempest, and

(b) at the request and with the consent of the Beneficiary to let my said home on lease for such term as the Beneficiary and my Trustees shall agree at the best rent reasonably obtainable and otherwise on such terms and conditions as my Trustee thinks fit and my Trustee shall pay to the Beneficiary the amount of all rental and premiums (if any) received in respect of the letting of my said home, less any management charge to which my Trustee is entitled in respect of such letting and the Beneficiary shall remain responsible for the payment of all rates taxes and outgoings in respect of my said home and for keeping my said home in good repair and insured against fire storm and tempest except to the extent that any or all such responsibilities are undertaken by any lessee of my said home, and

(c) at the request and with the consent of the Beneficiary to sell my said home and to invest the proceeds of sale thereof at the direction of the Beneficiary either-

(i) in the purchase of another residence (whether a house, home unit or otherwise) approved by the Beneficiary which shall be held by my Trustee upon and subject to the same trusts as the trusts upon which my said home was held by my Trustee prior to the sale thereof, or


(ii) in the purchase in the name of my Trustee from a reputable life assurance company approved by my Trustee of an annuity upon and for the life of the Beneficiary, such annuity to be of the maximum amount which can be purchased for the amount of such proceeds of sale having regard to the life expectancy of the Beneficiary and such annuity shall be payable by quarterly instalments AND I DECLARE that my Trustee shall stand possessed of such annuity when purchased UPON TRUST to pay the same to the Beneficiary by quarterly instalments within ten (10) days from receipt thereof by my Trustee and each such payment shall be treated as a payment in advance PROVIDED ALWAYS that if the Beneficiary shall commit permit or suffer any act default or process whereby the said annuity or any part thereof would or might but for this present provision become vested in or payable to any other person or persons then such annuity shall immediately thereupon absolutely cease and determine as if the Beneficiary were dead and any purchased annuity shall thenceforth during the life of the Beneficiary be applied as if this trust had failed and I DECLARE that the Beneficiary shall not be entitled to receive the capital value of the said annuity in lieu thereof


AND I DIRECT my Trustee to apply in accordance with sub-paragraph (ii) above any part of the proceeds of sale of my said home or any other residence held by my Trustee upon the same trusts not applied in accordance with sub-paragraph (i) above.

5. I DECLARE that if the Beneficiary shall fail to pay any rates, taxes and outgoings in respect of my said home or if she shall fail to keep my said home in good repair and insured against fire storm and tempest and if such failure shall continue for a period of three (3) calendar months from the giving by my Trustee of written notice to the Beneficiary requiring the Beneficiary to remedy such failure, then my Trustee shall have power to sell my said home and shall apply the proceeds of sale in accordance with sub-paragraph (ii) of paragraph (c) of Clause 4 hereof.

6. I GIVE DEVISE AND BEQUEST the rest and residue of my real and personal property of whatsoever kind and wheresoever situate (hereinafter called "my residuary Estate") unto my Trustee UPON TRUST

(a) to sell call in and convert into money such part of my residuary Estate as shall not consist of money and after payment thereout of my just debts funeral and testamentary expenses and all death estate and succession duties both State and Federal in respect of my estate and subject thereto;

(b) to pay to the Beneficiary the income for the time being arising from any part of my residuary Estate for the time being unconverted into money, and

(c) to apply the residue (hereinafter called "my net residuary Estate") in purchasing in the name of my Trustee from a reputable life assurance company approved by my Trustee an annuity upon and for the life of the Beneficiary, such annuity to be of the maximum amount which can be purchased for the amount of my net residuary Estate having regard to the life expectancy of the Beneficiary and such annuity shall be payable by quarterly instalments AND I DECLARE that my Trustee shall stand possessed of such annuity when purchased UPON TRUST to pay the same to the Beneficiary by quarterly instalments within ten (10) days from receipt thereof by my Trustee and each such payment shall be treated as a payment in advance AND THAT until the first quarterly instalment of such annuity is paid an amount not exceeding Three hundred Dollars ($300.00) shall be paid to the Beneficiary out of the income and/or capital of my net residuary Estate monthly in advance within ten (10) days from the first day of each month commencing with the month following my death PROVIDED ALWAYS that if the Beneficiary shall commit permit or suffer any act default or process whereby the said annuity or any part thereof would or might but for this present provision become vested in or payable to any other person or persons then such annuity shall immediately thereupon absolutely cease and determine as if the Beneficiary were dead and any purchased annuity shall thenceforth during the life of the Beneficiary be applied as if this trust had failed and I DECLARE that the Beneficiary shall not be entitled to receive the capital value of the said annuity in lieu thereof.

7. I DECLARE that if the trusts hereinbefore declared shall fail or shall be treated as having failed my Trustee shall hold my estate and any purchased annuity no longer payable to the Beneficiary UPON TRUST for the NEW SOUTH WALES SOCIETY FOR CRIPPLED CHILDREN to be applied for the general purposes of such Society AND I DECLARE that the receipt of the Secretary or Treasurer of such Society shall be a full and sufficient discharge to my Trustee for the same nor shall my Trustee be obliged to see to the application thereof."

3    The "Beneficiary" referred to in cl 4 of the will lived in the testator's property at Balgowlah until June 1979 when the property was sold for a net amount of just over $68,000. This sum was invested on behalf of the beneficiary and two years later was used to purchase a substitute property at Manly. The substitute property is probably now worth about $200,000 and is still held by the plaintiff.

4    In addition, the plaintiff holds various sums of money in its investment funds totalling $244,000, though some of this would appear to be rent prior to the death of the beneficiary on 6 March 1994, which might be her money in any event. I will just pass over this complication as it does not appear that the parties are really in dispute about it.

5    What is in dispute is what is to happen to the Manly property and to the estate's part of the $244,000.

6    One can see that if one puts aside all complications that life can throw up, the testator's general scheme was that the beneficiary would live in his house or a substitute house for as long as she liked and unless she failed to pay the rates, et cetera, which would cause a premature sale when she had finished wishing to reside in it, or letting it, the capital fund would be used to purchase an annuity. The residue of the estate under cl 6 would also be used to purchase an annuity.

7    It should be noted that the annuity is not an annuity in the orthodox sense, in that there is no sum stipulated as to the amount of income that the beneficiary is to receive, rather the whole of the moneys are to be used to purchase an annuity and, to use the words of clause 6(c):

"Such annuity to be of the maximum amount which can be purchased for the amount of my net residuary Estate having regard to the life expectancy of my Beneficiary."

8    This indicates that the trustee was to go to an insurance company, or the like, get a series of quotes for how much money could be paid to the beneficiary so that the fund would be exhausted on the death of the beneficiary.

9    Had all that happened, then the probabilities would be that nothing would be left after the death of the beneficiary. However, even on the most generous view of what might happen in the future, the testator has not dealt with the situation, at least expressly, as to what would happen if the beneficiary should die whilst she was still living in the Balgowlah house or its substitute.

10 The testator has indicated that the beneficiary is not to be entitled to receive the capital value of the annuity in lieu thereof. Ms Winters, for the representatives of the beneficiary's estate, says that usually that type of clause is construed as merely being in terrorem and would not necessarily operate in order to prevent the capital value passing to the beneficiary; see Hatton v May (1876) 3 Ch D 148 and Re Mabbett [1891] 1 Ch 707, 713. However, that was a very particular type of case and even if what was there said was of general application it would still not alter the fact that this testator has made it quite clear that the capital is not to pass to the beneficiary.

11    The other matter that will affect the beneficiary's annuity, or right to reside, is if she permits the annuity to be vested in or payable to any other person. That would include the situation where she assigned the annuity. As well, so far as the law allows, compulsory assignments on bankruptcy, et cetera would also be included.

12    Clause 7 then provides that if the trusts hereinbefore declared shall fail or shall be treated as having failed then the trustee is to hold "my estate and any purchased annuity no longer payable to the beneficiary" upon trust for the first defendant.

13    A few more facts are probably needed before I discuss the submissions.

14    The evidence shows that in 1979 when the Balgowlah house was sold there was an exchange of correspondence between the trustee and the beneficiary in which instead of the proceeds of sale and the residue being used to purchase an annuity, the funds were used under cl 8 of the will for investment. The upshot is that in fact at the date of the beneficiary’s death there was this $444,000 still in the estate when the testator expected that there would be nothing.

15 In such cases, unless one can construe a residuary clause very, very widely, the usual effect of an accidental sum of money being held in an estate is that the accidental sum passes on as on an intestacy as property undisposed of by the will; see Berry v Geen [1938] AC 575, 582. Lord Maugham LC there cites a series of cases mainly dealing with excessive accumulation under the Thellusson Act.

16    In the instant case there is really no residuary gift so that unless cl 7 operates, or unless there is on the proper construction of the will a gift by implication to the beneficiary, the next of kin will take the surplus.

17    The main submissions that have been presented by counsel for the plaintiff and the second, third and fourth defendants (the first defendant submitting) have focussed upon three matters.

1. Whether the beneficiary gets personal rights, a life estate or an absolute gift;

2. The meaning of the words "fail or shall be treated as having failed" in clause 7; and

3. The presumption against intestacy.

18    1. It is put that despite the declaration to which I have referred, the beneficiary gets an absolute interest.

19    I cannot see, despite the very well reasoned submissions that Ms Winters put both orally and in writing, how the beneficiary can say that she had any more than the right to enjoy the residence and the income for life.

20 It seems to me that rules, such as that an indefinite gift of income carries the capital (Cowan v Larkman (1888) 60 LT 1, 3) have no application in the instant case. This was not an indefinite gift of income. The trustee was told to buy an annuity for the maximum value based on the life expectancy of the beneficiary. Obviously the annuity was only for her life because otherwise it would have been quite wrong to have any reference at all to her life expectancy.

21    The matter raised in Hatton v May and Mabbett's case should not, in my view, be taken as a general rule but only as a guide to how courts might construe declarations such as are at the foot of cll 4 and 6 of this will. The whole must be read together, and on reading the whole together, in my view, the beneficiary did not take an absolute gift.

22 2. I now have to consider the word "fails". As Jordan CJ said in Ingram v Ingram (1938) 38 SR (NSW) 407, 410 and Kirby P said in CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601, 608-609, the word "fails" can have a multitude of meanings. The prime meanings given by Kirby P in O'Neill's case were:

1. Simply the omission to do a thing irrespective of reasons;

2. An omission because of some carelessness or delinquency, but not an omission caused by impossibility; and

3. An omission to do a thing, including impossibility.

When one goes to the will cases one sees other combinations of possible reasons.

23 In Thomson's Trustees v Thomson [1946] SLT 339 William Thomson entered into a trust in 1939 and then went off to the war where he was killed. Accordingly, he died much younger than he expected and the trust had to be construed in the light of facts which he may not have had in mind. He married three months before he died. There was a gift to his widow and children and then a provision that "should all of these provisions fail" there were gifts to his mother. The court had to consider what was meant by the words "these provisions" and "fail".

24    The choice was between whether the provisions were incapable of ever having effect or became incapable of ever receiving further effect. The court opted for the second interpretation.

25 This is reinforced by the approach of Buckley J in Re Doland's Will Trusts [1970] Ch 267. In that case the wife of a beneficiary had witnessed the will and so certain of the trusts did not take effect. The will provided that certain things should happen if any of the trusts failed. Buckley J held that because the gifts had never taken effect they never failed, they just simply had been null and void from the beginning.

26 Finally, the Victorian Full Court considered the problem in Re Pennington [1972] VR 869. Clause 5 of the will said:

"In the event of the failure or termination of the aforesaid trusts ... my trustee shall hold my residuary estate ... ".

27    Anderson J, at first instance, had held that such a clause was virtually a residuary clause, so that anything that was left over by the termination of earlier trusts passed under cl 5. The Full Court reversed that view. Although the Full Court was dealing, of course, with particular words in a particular will, it did say at p 874 that to construe cl 5 as operating virtually as a residuary clause:

"would be to depart from the ordinary and natural sense of the testatrix's language. The circumstance, therefore, that (counsel's) construction would avoid a partial intestacy cannot justify its adoption here ... ".

28    The trend of authorities seems to me that when you find a clause which operates if trusts fail, one should not be encouraged in construing it as a wide ranging residuary clause which picks up property undisposed of, or property that is left over generally, but should construe it more narrowly.

29    However, general guidelines as to construction are no substitute for dealing with the words of the particular will.

30    Clause 7 deals with two events, trusts failing or trusts being treated as having failed. It is to be noted that there is no severance. "Trusts" almost certainly means all the trusts, rather than some of them, and this is reinforced by the combined expression "hold my estate and any purchased annuity".

31    It can be seen that the words "shall be treated as having failed" pick up the proviso in cl 4(c)(ii), and the proviso in cl 6(c), that is, that the annuity shall cease and be applied as if this trust had failed.

32    What is less simple is to work out what the testator meant by the word "fail". He may not have meant, if one follows the Thomson and Doland line of authority, that there was nobody to take because then the gift never would come into operation. The deemed failure is dealt with by the proviso. In what other way could there be a failure?

33    The only answer that counsel could give to this question was that there could be some illegality. It is rather hard to see how this is an answer because the only illegality that could come about is if there was some breach of the Thellusson Act or the beneficiary became an enemy alien.

34    The upshot is, in my view, that one does not follow the Thomson/Doland line of authority, and the word "fails" must mean fails to take effect.

35    Accordingly, if the trusts do not take effect or cease to be under the relevant proviso, the trustee is to hold the estate and the purchased annuity for the first defendant.

36    "My estate" must mean the real property at Balgowlah or the substitute. Query whether it also means what happened in the instant case where by agreement with the beneficiary the trustee did not buy the annuity, but instead invested the money and paid her the income so that there was capital at the end. It does not really matter in the long run because the only time that the first defendant was to take is in the event of those two occurrences, neither of which happened.

37    3. The result is that having eliminated the descendants of the life tenant and the charity, the next of kin should take.

38 The court does have a natural reluctance to say that a testator who has gone to the trouble of making a will has not done it properly and has died intestate as to part. The famous dictum of Lord Esher in Re Harrison (1885) 30 Ch D 390, 393 was cited, but it is also clear that that presumption only goes a certain way, and that there being no other rational solution that can be obtained from the words the testator has employed, then the court must give effect to what the testator has done or failed to do; see Re Edwards [1906] 1 Ch 570, 574.

39    Thus, in my view, the estate, other than the moneys which I have referred to in passing above, pass to the next of kin.

40    Accordingly, I determine that on the true construction of the last will of Stanley Clyde Pelzer and in the events which have happened there is an intestacy in respect of the invested moneys, plus property at 11/3 Osborne Road, Manly.

41    I order that the costs of the plaintiff and the costs of each of the defendants be paid out of the estate of the deceased on the indemnity basis and I give liberty to apply.

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