Re Bell

[2004] NSWSC 1175

CITATION:	Re Bell [2004] NSWSC 1175
HEARING DATE(S):	16/09/04 and 10/11/04
JUDGMENT DATE:	6 December 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Young CJ in Eq
DECISION:	Advice given as to proper administration of trust.
CATCHWORDS:	EQUITY [205]- Trusts- Advice to trustees- Ambit of jurisdiction. PRACTICE [747] Declaratory orders- Hypothetical question- Future events relevant- When declaration as to future of trust may be made. SUCCESSION [214]- Acceleration- Whether constitution of class of remaindermen affected. WORDS & PHRASES- "Next of kin".
LEGISLATION CITED:	Conveyancing Act 1919 s 33 Trustee Act 1925, s 63
CASES CITED:	Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Church Property Trustees Diocese of Newcaste v Ebbeck (1960) 104 CLR 394 Collins v Equity Trustees Executors & Agency Company Ltd [1997] 2 VR 166 Curtis v Sheffield (1882) 21 Ch D 1 Napper v Miller [2002] NSWSC 1122 Pascoe v The Incorporated Law Institute of NSW (1937) 54 WN (NSW 13 Re Box (1862) 11 WR 945 Re Box (1863) 1 H & M 552; 71 ER 242 Re Harker's Will Trusts [1969] 1 WLR 1124 Re Hartigan [1989] 2 Qd R 401 Re Johnson (1893) 68 LT 20 Re Kebty-Fletcher's Will Trusts [1969] 1 Ch 339 Re Sparke (1907) 24 WN (NSW) 153 Re Syme [1980] VR 109 Re Tooth & Co Ltd (1978) 19 ALR 191 Sydney Futures Exchange Ltd v Australia Stock Exchange Ltd (1995) 16 ACSR 148 Tompkins v Simmons (1931) 44 CLR 546 University of NSW v Moorhouse (1975) 133 CLR 1 Wyndham v Darby (1896) 17 LR (NSW) (E) 272
PARTIES :	Helen Mary Bell and Gemma Patricia Sherwood (P)
FILE NUMBER(S):	SC 3553/04
COUNSEL:	M A Bradford (P)
SOLICITORS:	Peacocke Dickens & Price (P)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

YOUNG CJ in EQ

Monday 6 December 2004

3553/04 – APPLICATION OF BELL

JUDGMENT

1 HIS HONOUR: This is the third set of reasons I have given concerning the will of the late John Gordon who died on 3 August 1963.

2 The first judgment was given on 19 August 1988 as Gordon v Gordon in proceedings 2710 of 1988. The second was given in the present proceedings on 16 September 2004. This third judgment relates to the orders that should be made in these proceedings and a further consideration of the gifts of capital that will take effect when the last of the life interests determine.

3 As at the date of his death, the testator owned either directly or through his shareholding in a pastoral company which he controlled, a grazing property, “Wexford”, near Coonamble. His will is structured on the basis that his executors would continue to own and manage Wexford until the death of the last of his nephews and nieces.

4 The testator’s basic scheme became unworkable when this court authorised the sale of Wexford in 1968. Thereafter, the estate has consisted of investments. However, the distribution of income has carried on, as it had to, in accordance with the testator’s plan that Wexford would produce that income.

5 The key part of the testator’s will is as follows:

“ AND AS TO my pastoral holdings… to retain same until the death of the last of my nephews and nieces Ronald George Gordon, Oliver John Gordon, Albert Fraser Gordon, Daphne Beryl Aveling, Joan Mary Gordon and Ellen Mary Gordon and in the meantime to manage and carry on my grazing business… and to divide the nett profits arising therefrom annually equally between the said RONALD GEORGE GORDON, OLIVER JOHN GORDON, ALBERT FRASER GORDON, DAPHNE BERYL AVELING, JOAN MARY GORDON AND ELLEN MARY GORDON provided that until the death of the last of them my said nephews and nieces the share of income to which any of them who shall have died would if living have been entitled shall pass to next of kin of such deceased nephew or niece determined in accordance with the laws of distribution on intestacy AND UPON the death of the last of them my said nephews and nieces to sell…and to divide the proceeds of such sale… into six equal parts and to divide one of such parts equally between the next of kin of each of them my said nephews and nieces such next of kin being determined in accordance with the laws of distribution on intestacy”.

6 The current trustees of the will are the plaintiffs, Helen Mary Bell and Gemma Patricia Sherwood. They are not happy with having to administer the relatively small amount held in the estate and are concerned at the disproportionate costs of administration. They would like to wind up the estate if possible. All the current beneficiaries agree in this.

7 The current situation is that of the six named nephews and nieces of the testator, only Joan and Ellen remain alive.

8 Accordingly, it is only the income of the fund that is presently being distributed. Apart from the one-third passing to Joan and Ellen, the other two-thirds is being paid to the next of kin of the deceased nephews and nieces or, in the case where the next of kin have later died themselves, in accordance with the will of those next of kin. This is in accordance with my two previous judgments.

9 In my second judgment, I declined to deal with any question as to the capital on the basis that it was premature and that persons not yet identified might wish to be heard on the matter of its fate.

10 Mr Bradford of counsel who now appears for the trustees, wishes me to reconsider my advice to the trustees given in 1988 and to deal with the questions arising as to the capital. I am told that all the current beneficiaries join in this request.

11 I should note that, both in 1988 and this year, no-one was prepared to meet the cost of a contradictor and so the court only heard one counsel. Although on each occasion, that member of counsel was one of the top counsel in the field, as I pointed out in 1988, whilst this is understandable in the interests of economy, the court is put at a disadvantage.

12 Mr Bradford asks the Court to address the following questions,

1. Should the trustees continue to administer the estate on the basis of the 1988 advice or should they distribute the future income in accordance with s 33 of the Conveyancing Act , 1919 as amended in 1954?

2. If any of the next of kin die intestate, how do the trustees determine the identity of the next of kin? Does s 33 in its pre-1977 form apply?

3. For capital distribution purposes, on the death of the survivor of Joan and Ellen, and on the assumption that s 33 remains in its present form, do the trustees distribute the capital to the next of kin then living in accordance with the pre-1977 regime? If not, on what basis is the capital to be distributed?

4. Are the trustees entitled to wind up the trust at this stage on the ground that it would be expedient to do so and, if so, what steps should they take to bring about a final distribution of the capital?

13 I will address each question in turn, but, before I do so, I should note some general matters and make some observations which concern all these questions.

14 First, I note that the trustees say that Joan and Ellen are willing to relinquish their interests in the future income if doing so would enable the early winding up of the trust.

15 Secondly, I note that some of the problems in the administration of this estate have come from the fact that Wexford was sold in 1968, yet the scheme based on its retention was retained. However, problems have also occurred because of the reference in the will to “next-of-kin” and the amendments from time to time of s 33 of the Conveyancing Act, 1919, which define that expression.

16 As at the date of death of the testator, s 33 of the Conveyancing Act, so far as is relevant read as follows:

“Where … any property vests in … (b) the next of kin of any person; or (c) the next of kin of any person to be determined in accordance with the Wills, Probate and Administration Act, 1898, the property shall vest in the persons who on the death of such person intestate would be beneficially entitled to his real and personal estate under Division 2A of Part II of the said last mentioned Act, and in the same shares”.

17 The present form of s 33 applies in the case of wills coming into operation after the enactment of s 3 of the Conveyancing (Amendment) Act, 1977, that is, 1 January 1978. The present s 33(3) appears to say that the law as would have applied had s 3 of the 1977 Amendment Act not been passed, continues to apply to wills coming into operation before 1978. Whether it does so is a matter of debate.

18 In 1988, I said that s 33 of the Conveyancing Act in its pre-1977 form applied. I further said that the expression “determined in accordance with the laws of distribution on intestacy” meant paragraph (c) applied, but this was of little moment as para (b) would give the same result.

19 However, I had problems with the interpretation of the 1977 form of section 33(3). Literally, that sub-section only applied if it was sub-section 3 alone that prevented the vesting in next of kin. If that were not the case, then, unless the pre-1977 s 33 conferred a vested right, one had to go back to the general law definition of next of kin.

20 However, the text of the judgment of 1988 then says, “accordingly one applies subsection 1.” The word “accordingly” could not be appropriate here. The reference should have been to s 33(1A) of the pre-1977 section. That was the source of the vested right to income that existed before the 1977 amendment. This error was not picked up either by me or my then staff or by the lawyers then acting for the trustees. The trustees are justified in the distributions of income they made based on the error, but that is no reason why there should not be a different distribution in future. However, it may be that there has been no real difference in practice in the distributions made up to date.

21 On this basis the income is dealt with as follows:

(a) One third to Joan and Ellen;
(b) Two thirds to the next of kin of the four deceased nephews and nieces according to the pre-1977 version of s 33 (“income next of kin”) subject to;
(c) The shares of those next of kin who die before the distribution date pass as per the will of each of those next of kin.

22 I am told that, to date, no beneficiary who has qualified as "next of kin" has died intestate.

23 When the date of distribution of the capital comes round, the trustees have taken the view, which appears to be correct, that they will then need to consider who, as at that date, is the next of kin of each of the nephews and nieces. Again, the pre-1977 formula will be employed.

24 The persons who may qualify as next of kin as at the date of distribution almost certainly will not be wholly identical with the persons entitled to the income. For instance, if one of the “income next of kin“ left a will naming as executor a stranger, the share of capital will pass otherwise.

25 The persons who will take the capital are, at this stage unknown and may indeed be unborn. However, if one was doing an exercise in probabilities, the odds would favour the great majority of them being persons currently receiving the income of the estate.

26 The final preliminary matter to consider is when the Court will answer a question arising in the administration of an estate which is hypothetical or dependent on the happening of future events.

27 Question 2 raises an hypothetical matter in that there is no certainty that any of the “income next of kin” will die intestate. Question 3 depends to a degree on future events.

28 Mr Bradford says that his research reveals that the rule against dealing with hypothetical issues emanates from the decision of Page Wood VC in Re Box (1862) 11 WR 945; see eg Parker’s Equity Practice, 2nd ed p 757 note 58. He points out that this decision has been mentioned with approval in this Court in Pascoe v The Incorporated Law Institute of NSW (1937) 54 WN (NSW) 13 at 15. This reference, however, was in obiter dicta.

29 I doubt whether Re Box is the fons et origo of the principle. The report is very short and indeed is contained in only one paragraph. The question was how an anticipated call on partly paid shares was to be borne. Page Wood VC declined to deal with the case until the call was made. He stood the matter over and, when the call was made, heard the matter, his later decision being reported as Re Box (1863) 1 H & M 552; 71 ER 242.

30 The courts still take the view that it is not a proper judicial function to answer purely hypothetical questions: University of NSW v Moorhouse (1975) 133 CLR 1 at 10; Sydney Futures Exchange Ltd v Australian Stock Exchange Ltd (1995) 16 ACSR 148 at 187.

31 However, the modern approach to hypothetical questions, particularly in declaratory proceedings, is to consider whether there is a current controversy and the degree of uncertainty involved; see eg Re Tooth & Co Ltd (1978) 19 ALR 191 at 209 and Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-2.

32 The usual starting point when considering whether the court should deal with future issues is the judgment of Jessel, MR in Curtis v Sheffield (1882) 21 Ch D 1 at 3-4, where he said:

“Now it is true that it is not the practice of the Court, and was not the practice of the Court of Chancery to decide as to future rights, but to wait until the event has happened, unless a present right depends on the decisions, or there are some other special circumstances to satisfy the court that it is desirable at once to decide the future rights. But where all the parties who in any event will be entitled to the property are of age and ready to argue the case, the reason for the rule departs, and it becomes a bare technicality. The reason for the rule is this, that the Court will not decide on future rights, because, until the event happens it does not know who will be interested in arguing the question, and therefore may be shutting out parties who, when the event happens, may be entitled to succeed …”.

33 The “rule” as laid down in Curtis v Sheffield goes to discretion, not jurisdiction; see eg Re Sparke (1907) 24 WN (NSW) 153 at 154, where counsel provides a list of cases where the discretion has been exercised in favour of determining future rights.

34 I considered that there was a rule of equity practice which prevented me from dealing with the capital both in my 1988 advice and the advice I gave the trustees in August this year. Mr Bradford only realized that I had this problem when I declined to make orders in accordance with his draft short minutes of order and he asked that I reconsider my view.

35 Mr Bradford submits that, in more recent times, the courts have been more ready to exercise their discretion to determine future rights than previously and cites as an example my preliminary decision in Napper v Miller [2002] NSWSC 1122 [30].

36 This is certainly the case. In Church Property Trustees Diocese of Newcastle v Ebbeck (1960) 104 CLR 394 at 401, Dixon J said that the modern approach was to answer the future question if current beneficiaries would be hampered in their practical affairs in some significant respect by the uncertainty. The words "hampered in their practical affairs" have been widely construed in later cases; see eg Re Syme [1980] VR 109 at 113.

37 In the present case, Mr Bradford says that the cost and inconvenience of administration of the fund combined with the fact that the great majority of persons who will take the capital are known and wish to know the answer, shows that the Court should answer the questions.

38 I now turn to the questions.

39 1. From what has been said above, the advice must be that the trustees from now on are to distribute the income on the basis that the next of kin are those specified in the pre-1977 version of s 33 of the Conveyancing Act, 1919.

40 2. The answer to the second part of the question is clearly, “Yes”. The answer to the first part must clearly follow from what I have already said that the income will pass to the administrator of the “income next of kin’s” estate. I am not really troubled with any hypothetical argument on this point.

41 3. I believe that the futurity problem can be overcome because of the existence of s 63(8) of the Trustee Act, 1925 which requires the trustees to serve on any beneficiary whose rights may be affected, a notice summarizing the effect of any order made under the section. Such beneficiary may then have the opportunity to protest and be heard.

42 With this protection, I can venture more willingly into the field of futurity, especially as there does not appear to be any viable alternative to the answer that the pre-1977 s 33 applies to the determination of as to how one determines the next of kin of the nephews and nieces who are to take the capital.

43 4. The policy of the Court is not to give advice as to how a trust may be terminated. If a scheme is proposed, the Court can say under s 63 of the Trustee Act that the trustees are justified in participating in such scheme. Accordingly, all I consider I should do is to make some observations which, I hope, the trustees may find helpful.

44 In former days, this sort of problem was approached by finding an insurance company which would, for a relatively small premium, insure the trustees against the possibility of a claim to capital by an unascertained beneficiary. I believe insurers do not currently carry on this business.

45 The parties may enter into a deed of family arrangement with a retention fund to provide for the possibility of claims together with indemnities to the trustees. This would release the bulk of the capital, and all that the trustees would then have to do would be to invest the retention fund and distribute it when the last survivor of Joan and Ellen dies.

46 The Court would not determine the justification for the trustees to enter into such a deed of family arrangement unless and until the final draft had been prepared and agreement in principle all round had been reached.

47 I note the proposal that Joan and Ellen might surrender their life interests. There would be an awkward question of construction as to whether this would accelerate the remainder or whether it would be necessary for all the current gifts of income to be surrendered.

48 The matter of acceleration in the present context was considered by Lush J in Re Syme [1980] VR 109 at 114 et seq. His Honour said that there were really two questions to be addressed: (1) whether the gift of capital was accelerated; and (2) whether the constitution of the class was affected by the acceleration. See also Re Johnson (1893) 68 LT 20.

49 His Honour placed the apparently conflicting cases into three categories and ruled that whether the constitution of the class of remaindermen is affected by acceleration is a matter of the intention of the testator as displayed in his will, but that unless the contrary intention appeared, the determination of the constitution of the class was accelerated.

50 Re Syme was followed and explained by Williams J in Re Hartigan [1989] 2 Qd 401, at least in cases where the gift of capital was not contingent. It has been followed in Victoria in Collins v Equity Trustees Executors & Agency Company Ltd [1997] 2 VR 166.

51 The conclusion reached in Re Syme is also consistent with the Full Court decision in Wyndham v Darby (1896) 17 LR (NSW) (E) 272 which may still be binding. See also Tompkins v Simmons (1931) 44 CLR 546.

52 Accordingly, provided that the Court is satisfied after fully researched argument that there is no contrary intention in the will, the appropriate surrender of the gifts of income will bring forward the ascertainment as to who constitutes the class entitled to the distribution of capital.

53 However, it must be remembered that cases referred to in Re Syme, such as Re Kebty-Fletcher’s Will Trusts [1969]1 Ch 339 and Re Harker’s Will Trusts [1969] 1 WLR 1124 support the proposition in Theobald on Wills 14th ed at p 389 that the surrender of life interests does not in itself affect the fact that the class of remaindermen is to be ascertained at the date of the life tenant’s death.

54 I believe that all I should do is publish these reasons and stand the matter over. It may take some time for the trustees and beneficiaries to meet and determine their future course. It may take time to prepare further submissions. I will relist the matter for mention on 8 March 2005 at 9.50 am, but short minutes finalizing all but question 4 can be brought in to chambers at any convenient time and I will give general liberty to apply on 5 days’ notice.

**********************

Last Modified: 12/15/2004