Re Langford (dec'd); Equity Trustees Ltd v Langford
[2005] VSC 84
•24 March 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7300 of 2004
IN THE MATTER of the Will and Estate of Clements Langford, deceased.
BETWEEN:
| EQUITY TRUSTEES LTD (as Trustee of the Estate of Clements Langford deceased) | Plaintiff |
| v | |
| JACK ELGAR LANGFORD and OTHERS | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATESOF HEARING: | 7, 8 and 9 February 2005 | |
DATE OF JUDGMENT: | 24 March 2005 | |
CASE MAY BE CITED AS: | Re Langford (deceased); Equity Trustees Ltd v Langford | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 84 | |
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Administration and probate – settled land – Trustee’s power of sale under the salvage jurisdiction – Trustee’s power of sale under expediency jurisdiction.
Trustee Act 1958, s.63
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R. A. Brett QC with Ms K. Anderson | Chessell Williams |
| For the 1-3rd, 5-14th and 16th Defendants | Mr S. McNab | Darren Muir Fleiter |
| For the 15th and 18th Defendants | Mr N. O’Bryan SC | Norton Gledhill |
| For the 19th – 29th Defendants | Mr G. Uren QC | F.R. Monotti & Co |
| For the 30th Defendant | Mr J. O’Bryan | Victorian Government Solicitor |
HIS HONOUR:
Many a parent would like to have a beach house – a place where they and their children and their children’s children can gather and recreate in the long summer days and, indeed, throughout the year. The late Clements Langford was one such. He had the added advantage of being a successful master builder and a wealthy man. He was able to build a seven bedroom house of 265 sqm on the cliff top at Sorrento on a block of land in excess of four acres which he had purchased in 1904. The property is called Netley.
Mr Langford made provision for his family’s continuing enjoyment of Netley in cl. 7 of his will dated 23 June 1928.
“7. I direct my trustees to retain my property known as ‘Netley’ Sorrento and to pay all rates taxes charges insurance and other expenses in connection therewith including all repairs and the keeping of the house grounds and fences in good proper and tenantable order and repair and to permit my children and my grandchildren as hereinafter defined to use occupy and (enjoy the same free of charge according to such arrangements
O’D.C.
C.L.
J.H.P.
as my said (children and grandchildren shall agree upon between themselves or failing (such agreementas my trustees shall decide.”
The testator died on 6 February 1930.
Now, 75 years later, Mr Langford’s widow and all of his eight children are deceased. Of his 26 grandchildren there remain surviving only sixteen whose ages range from 62 years to 91 years. The actuarial opinion before me shows that the class of grandchildren is expected to expire at the end of 2030 or thereabouts[1].
[1]The Mercer Report dated 23 July 2003 IFL7/p. 5 predicts expiry after 27.3 years, that is in November 2030. The Report of Gregory Errol Blashki dated 5 February 2005 Exhibit GEB2/1 assumes 25.8 years, which is approximately equivalent. The Askit Consulting letter dated 2 February 2003 estimates 28.3 years, that is June 2033. For my purposes the differences are not significant.
Difficulties have arisen in the administration of the estate, and the executor and trustee, Equity Trustees Ltd, seeks the determination of the Court of a number of questions to which I will later return.
These difficulties may be shortly stated. The municipal value of Netley is $17.2M and its sale value is likely to be in the vicinity of $20M. As a holiday house, the property does not generate any income. The estate has, as at 30 June 2004, miscellaneous investments of $1,355,553 which, in the year 2003-4, produced an income of about $50,000. Notwithstanding this, the estate income account was then in debit in the sum of $97,557.40. These difficulties have come to a head upon the receipt by the Trustee in early 2004 of three land tax assessments levied in respect of Netley, totalling $1,612,940.
UCV Assessment 2002 9,100,000 374,880 2003 11,466,000 493,180 2004 16,500,000 744,880 $1,612,940 Under an arrangement reached with the State Revenue Office, penalty interest at 20% will not be imposed until 23 March 2005. The Trustee also expects that a land tax assessment for the year 2005 which is soon to be issued, will be only slightly less than that imposed for the year 2004.
It is apparent that the estate cannot continue to be administered without the sale of all or part of Netley. The questions for my determination are, essentially, whether the Trustee might sell the property or part of it to meet its obligations for land tax and, in the event that, after so doing, there is a surplus, how the income from that surplus should be dealt with.
The Will
Under the will the estate of the deceased is given to the executors to pay the usual testamentary expenses and a number of legacies and annuities. These have been paid. By cl. 6 a freehold property in Richmond was given to a niece for her life with a gift-over to residue. The life estate has recently fallen in. Then, followed cl. 7 which is set out above. It will have been noted that, under this clause, taxes incurred with respect to Netley are to be borne by the estate. In this case it was accepted that these might be borne by income or corpus in the hands of the Trustee. Clauses 8, 9, 10 and 11 contain gifts which are of no present relevance.
Clause 12 deals with the income from residue. The income is to be divided into 10 parts, of which one was given to the widow for her life, one to each of the eight children and their grandchildren per stirpes, and the last to the charities described in cl. 13. The scheme of cl. 12 is that, as the class comprising a child of the testator and that child’s children expired, their one-tenth share of income passed to the charities under cl. 13. Accordingly, since the widow and one child without issue have died, the charities are presently entitled to three-tenths of the income from residue. As the grandchildren die, the remaining parts will pass to the charities until, upon the death of the last of the grandchildren, all of the income from residue will be paid in perpetuity to the charities. At present, given the costs of upkeep and outgoings incurred with respect to Netley, no income is available for distribution under this cl. 12.
Clause 13 directs the Trustee to apply in a particular way the shares of income which passed to the charities under cl. 12. The method of distribution of income is not important for my present purposes, except to note that ninety-eight one-hundredths of the income passes to 10 named charities and to a charitable trust called The Clements Langford Trust which is established under cl. 14 of the will. These are the named charities which are the nineteenth to twenty-ninth defendants. The remaining two one-hundredths of the income from residue are given to the Trustee upon a discretionary trust for charities of its choice. The interests of these beneficiaries are represented by the thirtieth defendant, the Attorney-General for Victoria. It appeared that the interests of all the charities including those represented by the Attorney-General were identical and I shall not distinguish between them.
The Positions of the Parties
Netley has been subdivided into nine lots and one large further subdividable lot on which stand the house and tennis court. Of the nine lots, Lot 42 has a cliff frontage. Lots 51, 52, 53 and 54 front the Nepean Highway and Lots 47, 48, 49 and 50 have a frontage to Lentell Avenue which runs in an easterly direction from the highway towards the cliff. The opinion of Shaun Richard Manuell is that the whole of Netley might be sold for $19.2M and that the aggregate values of the four lots fronting Nepean Highway was $2,050,000. The opinion of the estate agent, R.T. Edgar Pty Ltd dated September 2003 is far more optimistic. It speaks of an aggregate total selling price of over $25M of which the lots fronting Nepean Highway represent $3.6M. It is not necessary for me to make a finding as to these values but I shall proceed on the more conservative valuations of Mr Manuell.
It appeared to be common ground before me that at least some of Netley must be sold to meet present and imminent liabilities. A sale of Lots 51, 52, 53 and 54 for a total some of $2.05M would yield for the estate, after allowing 6% for expenses, the sum of $1,968M. This would mean that the capital of the estate would then stand at about $3.32M, subject to current liabilities and legal costs.
The surviving grandchildren, however, are unable to agree upon the extent of the sale that should take place. Essentially, they fall into two camps: 14 grandchildren, who are the first, second, third, fifth, sixth, seventh, eighth, ninth, tenth, eleventh, twelfth, thirteenth, fourteenth and sixteenth defendants (“the majority class members”) accept that Lots 51, 52, 53 and 54 be sold and that the balance of Netley be sold in an orderly way over the next two to five years. The remaining two grandchildren, the fifteenth and eighteenth defendants (“the minority class members”) accept that these lots be sold in the short-term, but say that no further land be sold unless and until this be necessary, and then only sufficient to meet the liabilities then existing.
The position of the charities who are and will be progressively entitled to the income from residue, including the proceeds of sale of Netley when the class of children and grandchildren expires was that the whole or part of Netley be sold and that the proceeds pass to residue. Counsel for the named charities put it that portion of the property should be sold in an orderly way as was sufficient when invested to produce sufficient income to meet the outgoings and upkeep of the unsold portion. This course would best preserve the capital of the estate so that it might in due course produce income for the residuary beneficiaries under cl. 12.
The Trustee supports the majority class members and the charities; it seeks orders permitting it to sell the whole of Netley in an orderly way so as to maximise the proceeds for the benefit of the estate.
The immediate consequence of the adoption of the course proposed by the charities would be, first, that the expenses of the estate incurred with respect to the upkeep and outgoings of Netley would cease and, second, that the income from the proceeds of the sale of Netley would be paid, as to three-tenths immediately to the charities with the prospect that this would increase progressively as the grandchildren died. From the point of view of each of the grandchildren who, under cl. 12, take a share of the income of residue per stirpes, the size of their share of each one-tenth part would depend upon the number of their brothers and sisters living. So, for example, each of the first, fifth and sixth-named defendants, who is the sole surviving child of a child of the testator, would receive one-tenth part of the income from residue (10%), whereas each of the ninth to fifteenth-named defendants, who are the seven surviving children of a son of the testator, would presently each take a one-seventh share of a one-tenth part (1.43%), such share increasing towards 10% as their siblings died.
The concern that such distribution would be the consequence of the sale of the whole of Netley, not only caused the minority class members to oppose such a sale, but also caused all of the grandchildren to argue that the proceeds of such a sale or, indeed, the proceeds of any sale should, after payment of debts, not pass to residue and be dealt with under cl. 12, but should be treated as the proceeds of the sale of the land of which they each had a right to enjoy for their life. Accordingly, the income of the surplus should be paid to them or the survivors of them per capita in equal shares. This would mean that the present entitlement of each is to 6.25% of this income, which entitlement would increase as their numbers reduced.
The adoption of the course proposed by the minority class members would have the consequence that the proceeds of sale of the four lots fronting Nepean Highway would be applied to pay current liabilities of the estate including land tax. Assuming the net proceeds are as predicted, the capital of the estate of some $3.32M would be applied to satisfy present and imminent land tax liabilities totalling some $2.3M and to pay the income account overdraft and legal costs of this proceeding. It may be that the capital position of the estate would then stand at less than $1M. This sum when invested would then generate income which would be available to be applied to the upkeep and outgoings of Netley in the future. If the upkeep costs and outgoings, including land tax, continue at the current rate, this income as well as the capital would be consumed within a year or so, so that a further sale would then be required. And when the proceeds of this were exhausted, another sale would be required and so on. If this were to continue, it is likely that the whole of Netley would be consumed before the class expired. I have had placed before me projections on different scenarios which show that, if all of Netley, or perhaps all but the house block, is not sold over the next few years there will be very little if any capital left when the entitlements under cl. 7 cease upon the expiry of the lives in the class.
This has caused the charities to resist the proposal of the minority class members. It is their expectation that, unless a substantial part of Netley is not sold their expectancy of enjoying the income of residue under cl. 13 will be defeated.
And so, this case throws up once again the tension which will often exist in the case of settled land – a tension between the interests of the tenants for life and those of the remaindermen.
The Power to Sell
There is no express power conferred by the Will upon the Trustee to sell all or part of Netley.
On 15 July 1976, Dunn J[2] answered a number of questions arising in the administration of this estate including the following:
[2]Re Langford (No 2149 of 1975)
Question 5
(a)What rights or interests are conferred by clause 7 of the said Will upon the children and grandchildren of the testator in the property known as “Netley” Sorrento?
AnswerThe right to use occupy and enjoy the said property, but not a life interest strictly so called;
(b)What persons comprise the class of “my children and my grandchildren as hereinafter defined” referred to in clause 7?
AnswerAll the children of the testator and all the children of any child of the testator, whether that child of the testator is still living or not;
(c)What is the duration of the rights, interests or powers conferred by the words in clause 7 “to permit my children and my grandchildren as hereinafter defined to use occupy and enjoy the same free of charge according to such arrangements as my trustees shall decide”?
AnswerThe duration is until the death of the last member of the class of children and grandchildren;
(d)(i)Is the said property settled land for the purposes of the Settled Land Act?
Answer Yes;
(ii)If it is, what person or class of persons, (if any),
(ai)Are the tenant for life?
(ii)Have the powers of a tenant for life for the purposes of the said Act in respect of the said property?
AnswerThe class consisting of the children and grandchildren of the testator;
(e)Upon the death of the last person to die of the class of “my children and my grandchildren as hereinafter defined” in trust for what persons or what purposes and for what interests will the trustees of the said Estate hold the said property?
AnswerThe said property will form part of the residuary estate of the testator, to be dealt with in accordance with the provisions of clause 12 of the Will.
It was accepted by all parties before me that they were bound by these answers.
It is apparent from the answer to question 5(a) and from his Honour’s Reasons that the class of children and grandchildren are not life tenants. His Honour preferred to construe cl. 7 as giving to the class an exclusive right of residence during the life of any member of that class.
His Honour also determined that the land was settled land within the meaning of the Settled Land Act 1958 and that the members of the class of children and grandchildren had the powers of a tenant for life under that Act. It follows from this that the class might sell the land or any part of it with the consent of the Trustee or the order of the Court[3] but this course is not available in a case such as the present where all members of the class are unable to agree upon the land to be sold.
[3]Settled Land Act 1958 s. 38
The Trustee contends that the Court might authorise it to sell all or part of Netley pursuant to its inherent power of salvage or pursuant to s. 63 of the Trustee Act 1958.
Sale under the Salvage Jurisdiction
The general principle is that the Court has no power to authorise a trustee to disregard or re-write the trust and no power to authorise a transaction not permitted by the trust where all beneficiaries not consenting. This is notwithstanding that the proposed transaction would be beneficial to the trust and to the beneficiaries. To this principle there are certain exceptions including one “to authorise administrative acts of the trustees which otherwise were unauthorised was applicable to ‘cases of emergency’”[4]. In Chapman v Chapman[5] Lord Morton describes this jurisdiction as “limited and exceptional… to sanction transactions in the nature of ‘salvage’ of the trust property”.[6] It is clear from these cases and those cited in them that the jurisdiction is one to be exercised sparingly and only in cases of emergency and where the mischief which is besetting the trust property cannot be permitted to remain.[7] Furthermore, the Court cannot use this power to create a new trust in lieu of that which it is administering[8].
[4]Riddle v Riddle (1952) 85 CLR 202 at 235, per Kitto J (diss)
[5][1954] AC 429 at 454 and 455
[6]See, too, Re White [1959] VR 661 at 662, per Smith J (speaking of another of the exceptions to the general rule).
[7]See, too, Re Forster’s Settlement [1954] 3 All ER 714 at 718, per Harman J.
[8]Re Tollemache [1903] 1 Ch 457 at 462, per Kekewich J, upheld on appeal [1903] 1 Ch 955 at 956 (CA)
What is put in support of the existence of this power in the present case is that the burden of the existing land tax assessments totalling $1.6M cannot be satisfied out of the funds in residue in the hands of the Trustees. Furthermore, there will be no fund to meet the 2005 assessment which is expected to be in the order of $700,000. It is said that similar assessments may be expected annually in the future.
The Commissioner of State Revenue is given extensive powers to collect land tax apart from the imposition of penalty interest at the rate of 20% per annum. The land is charged with the payment of the tax[9] and may be sold to recover it. The Trustee may be required to pay it[10], in which event it would be entitled to indemnity from the trust estate[11]. The Commissioner may also choose to look to the life tenants of the land for payment[12].
[9]Land Tax Act 1958 s. 66
[10]Section 52
[11]Settled Land Act 1958 s. 100
[12]Section 41. I express no view as to whether the class members in this case, as statutory tenants for life, would have this liability.
All of this is very unsatisfactory and undesirable from the point of view of the Trustee and the tenants for life. Counsel, on behalf of the minority class members, however, submitted that the salvage power is not here available. First, there is in fact no emergency since all are agreed that the four lots, Lot 51, 52, 53 and 54 might be sold. If this course is adopted, it is expected to yield about $2M after the deduction of expense which will be ample to meet the immediate burden of land tax.
Further, it was submitted that the sale of the whole or a substantial part of Netley would have the consequence that the class members will be unable to enjoy the property as they had in the past, or at all, so that the exercise of the power to permit the sale would have the consequence of modifying the trust. The evidence of Ian Frederick Longford, one of the minority class members, was that Netley was for the family members more than just an asset. He described it as the spiritual focus of the Langford family and the repository of family memories which have arisen from its occupation by the family for over a century. He expressed the strong preference that his enjoyment of the property should continue as his grandfather had directed in cl. 7. What the class members will have, in the event of sale of the whole, will be only a right to a share of income from the fund constituted by the proceeds of sale. What these rights are will be addressed later. The effect of such a sale from the point of view of the class members would be to substitute for a right of enjoyment of a beach property contemplated by cl. 7, the right to receive a sum of money in the nature of interest. To do this, it was put, would be to create a new trust – a course which is not available in the exercise of the salvage jurisdiction.
I agree that this is not a case for the exercise of the salvage jurisdiction, insofar as it is concerned with, the sale of land which is not immediately required to meet existing and imminent commitments. All of the affected beneficiaries being sui juris and consenting to a sale of the four lots, there is no legal impediment to the Trustee adopting such a course and no need for the Court to approve it. It is no doubt desirable from the point of view of the charities that the further sales do take place, but this is not presently a matter of emergency. In a case where the Trustee was not authorised to effect repairs to a house property, the Court will authorise only the expenditure necessary to keep the property in existence[13] Counsel for the minority class members submitted, with some force, that the position in the future might be different. In the case of land tax, the rate of tax or the terms of its imposition may be changed by Parliament; it may be that one of the tenants for life might be permitted to use Netley as their principal home with the possible consequence that the property might become exempt from land tax.
[13]Re Dawes [1954] VLR 76 at 80, per Martin J
It is clear from cl. 7 that the testator intended to give to the children and grandchildren a non-monetary benefit and that this should continue throughout their lives. Elsewhere, in cll. 2 and 12, he made provision for them to enjoy a financial benefit. If any cl. 7 beneficiaries wishes to enjoy the benefit bestowed by the testator, I do not think that the Court should act to deny that benefit, unless this course is necessary in order to protect the trust property.
Sale Under Trustee Act s. 63
Section 63 of the Trustee Act 1958 permits the Court to authorise otherwise unauthorised dealings with trust property. It is in these terms:
“63. Power of Court to authorize dealings with trust property
(1)Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction, is in the opinion of the Court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument (if any) or by law, the Court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose on such terms and subject to such provisions and conditions (if any) as the Court thinks fit and may direct in what manner any money authorized to be expended, and the costs of any transaction are to be paid or borne as between capital and income.
(2)The Court may from time to time rescind or vary any order made under this section, or may make any new or further order.
(3)An application to the Court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.”
The statutory jurisdiction may be exercised only where a number of conditions are satisfied.
(i)The transaction in question is unauthorised by the trust instrument or by law.
In this case it was accepted that no express power was conferred by the will to sell the land as proposed by the charities. Counsel for the minority class members, however, submitted that the Trustee was given the power by law. They offered a number of sources of this power.
First, s. 100 of the Settled Land Act gives to the trustee power to reimburse itself out of the trust property. If the trustee were to pay the land tax out of its own pocket, it might sell sufficient of Netley to recoup that amount. This may be correct, but I doubt that this is a power to sell of the kind contemplated in s. 63. I do not go so far as to say that the power of sale given by law must be an unconditional and immediate power, but I would not think that this Court would refuse to act under s. 63 simply because the Trustee might, by taking certain steps, incur substantial personal expense which the trust does not provide for.
Second, it was said that the Trustee might obtain the power from the Court under s. 21 of the Settled Land Act. In this case, s. 21 can have no application for a number of reasons, of which the most important is that there is no evidence that the tenant for life, in this case the class members collectively, has “by reason of bankruptcy, insolvency, assignment, incumbrance, or otherwise ceased... to have a substantial interest” in Netley.
Third, mention was made of s. 92 of the Settled Land Act. I assume that the reference is to s. 92(2) which empowers the Trustee to approach the Court when that question arises or there is doubt respecting the exercise of a power. This is not a provision which confers a power of sale where none otherwise exists.
Fourth, it was said that s. 107 of the Settled Land Act conferred on the tenant for life the duties and liabilities of a trustee for all parties entitled to the settled land. Section 38 gives to the tenant for life the power of sale. The conclusion drawn from this was that the class members, as the tenant for life and as trustee, therefore, had the power of sale. The unstated, and I fear invalid, conclusion from all of this was that the Trustee had, therefore, the power of sale.
I am satisfied that there is no substance in any of these submissions. There is no power of sale given to the Trustee under the will or by law.
(ii)The transaction was one in the management or administration of the property.
These are words of wide import[14] and will clearly support the sale of part or all of the trust property in order to meet the expenses of the trust.
(iii) The transaction is expedient.
[14]Re Downshire’s Settled Estates [1953] Ch 218; Arakella v Paton [2004] NSWSC 13 at [76], per Austin J
It has been authoritatively decided that expediency is a wide and flexible concept[15]. The Court may act where it has formed the opinion that the proposed transaction is advantageous or desirable in the interests of the trust property as a whole[16]. There was in this case no real challenge to the contention of the Trustee that a sale to meet land tax obligations would be expedient.
[15]Riddle v Riddle [1952] 85 CLR 202 at 214, per Dixon J, at 220 and 222, per Williams J; Re Baker [1961] VR 641, per Adam J
[16]Re Dawson [1959] NZLR 1360 at 1363, per Adams J
The real debate was whether it would be expedient for the Trustee to sell a greater part of Netley than was required to satisfy immediate land tax and other expenses of upkeep and outgoings. This debate at times shifted to the next aspect of the exercise of the statutory jurisdiction, the operation of the Court’s discretion, and it is convenient that I deal with it in that context.
The power conferred by s. 63 is a discretionary one which would authorise a departure from the expressed wishes of the testator. It must therefore be exercised with a due sense of responsibility[17]. This will include a respect for the intention of the testator as this is disclosed in the general scheme of the will and for the interests of all of the beneficiaries or classes of them, without preferring one beneficiary or class only.
[17]Riddle v Riddle [1952] 85 CLR 202 at 214, 216, per Dixon J; Re Baker [1961] VR 641 at 649, per Adam J
Counsel for the charities, naturally enough, urged me to confer a wide power of sale upon the Trustee for fear that, otherwise, the gift of income to their client would be defeated. They derided the protestations of the minority class members that they wished to enjoy Netley in the future. They said that this sat uneasily with their readiness to agree to a sale provided that they received the whole of the income generated from the proceeds. To my mind, this is beside the point; I am concerned with the wishes of the testator as he has expressed them in the will, rather than the wishes of the beneficiaries.
The will is a carefully drawn one with detailed provision as to the wishes of the deceased with respect to his estate. It is clear enough that in the scheme of the will Netley enjoyed a special place. It was to be available, in the words of the late Mr NHM Forsyth QC and Mr P.J. Cosgrave of counsel in 1994, as “an elegant and carefree seaside home for such of his children and grandchildren who chose to avail themselves of it during their lives, without care or responsibility on their part”. I agree with this summary and observe, as they did, that it was not contemplated that all of the children and grandchildren should share equally. The house is large but it is apparent from the last words of cl. 7 that not all of the family would use it at the same time. It may be that some would have no use of it at all, depending upon their desires and the arrangements made by the Trustee, pursuant to cl. 7. A further aspect of this was that the possibility of any one child or grandchild enjoying the beach property would increase as the other class members become less numerous.
The costs of the outgoings and upkeep of Netley including land tax were to be paid from other assets of the deceased. It was suggested by counsel for the minority class members that these were not to be borne by residue, but by the estate before it fell into residue, I am not at all confident that this is correct, but nothing turns on it. The entitlement of the residuary beneficiaries to share in the income from residue is an entitlement which is subject to the expenses payable under cl. 7 in the same way that it must defer to the claims of the legatees, annuitants and the life tenant of the Richmond property. It may be that, in a given year, the residuary beneficiaries will receive nothing and, in any event, the amount of their entitlement would be affected, to their advantage, in the years after the death of the testator as the parts of the estate pass into residue[18]. If there be any doubt about the subordinate position of residue, it is dispelled by the opening words of cl. 12:
“Subject as aforesaid, I direct my trustee to stand possessed of the whole of the residue of my estate upon trust...”
[18]See, for example, cll. 5, 6 and 7
By cl. 2, the widow and each of the eight children received a legacy of ₤500 and, by cl. 12, they each receive one-tenth of the income from residue. The benefit given to them under cl. 7 was of a non-monetary kind.
The concern of the Trustee and the basis for the submissions put on behalf of the charities was that, without a sale of all or a substantial portion of Netley, the interests of the residuary beneficiaries might be defeated. The answer offered by the minority class members is that the will makes it clear that the residuary interests must yield to the demands of the cl. 7 beneficiaries. While it must be supposed that the testator had in mind that there would be assets in residue, and probably substantial assets, the amount, if any, of this must depend upon the value of the estate after the prior claims have been met.
To my mind, this is a correct analysis. It follows that, while the Trustee, and on this application the Court, must have regard to the interests of the residuary beneficiaries including the charities, it must do so recognising their subordinate position in the scheme of the will. The primary focus is then directed to the interests under the will of the class members under cl. 7. Their interest is to continue to have the right to enjoy Netley for as long as the class exists. If this right of enjoyment can only continue at the cost of Netley itself bearing the burden of land tax and other outgoings and upkeep, then part of Netley must be sold, but only sufficient to meet these costs, so as to preserve as far as possible the property for the purposes of cl. 7.
The contrary position, put on behalf of the charities and supported by the Trustee and the majority class members, I reject. It does not accord with the scheme of the will that the possibility of enjoying the beach house is transformed into a periodic monetary payment of interest. It is even less consonant with this scheme if the interest on the proceeds of sale is to be distributed not per capita, but per stirpes under cl. 12 as the charities contend. Furthermore, under cl. 12 the class members share their benefit with the charities, a position which does not arise under cl. 7. Finally, in lieu of the right of enjoyment which is fixed, perhaps unequally, by the Trustee under cl. 7, they would each take an unequal share calculated in accordance with cl. 12.
I conclude from this that the appropriate exercise of the power of the Court under s. 63 of the Trustee Act would be to authorise the Trustee to sell such parts of Netley from time to time as are necessary to pay the outgoings, including land tax, which are in cl. 7 cast upon the other assets, but, only where and to the extent that the other assets are insufficient. I would further authorise the Trustee to exercise its discretion as to what part or parts should be sold for this purpose, provided that the lot upon which stand the house and tennis court should be sold last.
The Surplus after Sale
If sufficient of Netley is sold to generate income to satisfy the outgoings and upkeep of the balance how is the Trustee to deal with any surplus income? This question may assume less importance, having regard to my determination of the first issue, but I suspect that it underlies a good deal of the practical impasse which exists between the class members and the charities.
The two contending positions were, first, that it should be distributed between the class members surviving from time to time, in accordance with their entitlements under cl. 7. The second was that the proceeds of sale pass into residue and that the surplus income is then distributed pursuant to cl. 12 as income from residue. The first position, that of all the class members, reflected, it was said, the reality that, by the sale, their enjoyment of the land was transformed into the enjoyment of the proceeds of the sale of the land. Reference was made to sub-ss. 75(5) and (6) of the Settled Land Act. The second position, espoused by the charities, would mean, not only that the share of individual class members would be different from that under cl. 7, but also that the class members would not collectively receive all of the surplus income: a share, and an increasing share, will be paid to the charities.
The submission on behalf of the charities was that the interest conferred by cl. 7 upon class members was not a life interest; it was a statutory interest as tenant for life under the Settled Land Act. So much was decided by Dunn J in 1975. It was then put that this interest does not entitle them to receive the rents and profits from Netley assuming, for example, that it was leased by them pursuant to s. 41 of the Settled Land Act. If the asset were liquidated they should be in no different position.
I address myself first to the entitlement under the will of the class members to the rent and profits of Netley. I was pressed with the terminology of cl. 7, “to use occupy and enjoy the same free of charge”. This was in contradistinction to the rights conferred upon the niece of the testator by cl. 6, “to have the free use occupation and enjoyment of the rents and profits derived from my freehold property…”
Given that the matter is essentially a question of construction of a particular instrument, authorities as to the construction of other instruments are of limited value. The starting point, however, must be the 1975 decision of Dunn J upon this will. His Honour concluded that the class members had only an exclusive right of residence. In his reasons his Honour referred to Re Hoppe (deceased)[19] and Re Potter (deceased)[20] as containing a discussion of this question. I was referred to a number of cases which considered whether the words of a trust which conferred mere rights of occupancy gave to the occupant the right to let the premises and to receive the rents[21].
[19][1961] VR 381
[20][1970] VR 352
[21]See Re Gibbons; Gibbons v Gibbons [1920] 1 Ch 372
In Re Hoppe, the bequest was “to permit my wife Danae Hoppe and/or my daughter Danette Hoppe to continue to reside in the home…” Pape J at first instance held that this was no more than a personal right to reside in the house[22] and this was upheld on appeal[23]. The Appeal Division also observed that this right conferred on the wife and daughter no right to let the home, absent some statutory power[24]. This last phrase shows that the position of the mere resident at common law is beside the point for my present purposes.
[22][1961] VR 381 at 387; Re Lawrence [2003] NSWSC 914
[23][1961] VR 381 at 401, per Herring CJ, Gavan Duffy and Dean JJ
[24][1961] VR 381 at 401-2, per Herring CJ, Gavan Duffy and Dean JJ. See also Equity Trustees Executors and Agency Co Ltd v Buckhurst [1907] VLR 252 at 257, per Cussen J; Re Anderson [1920] 1 Ch 175 at 181, per Sargant J; Re Lawrence [2003] NSWSC 914 at [17], per Bryson J
Where, however, the persons with a mere right of occupancy is a tenant for life under the Settled Land Act, that statute confers statutory power. It has been determined in this case that the class members are tenants for life and it must follow that they have the powers conferred by Part II of the Settled Land Act. By s. 41, they might lease Netley with the consent of the Trustee or the order of the Court. In such a case, they, like any lessor, might receive the rents. I do not accept the submission put on behalf of the charities that these rents would pass to the Trustee to be dealt with otherwise than pursuant to cl. 7.
In Re Potter, the will gave a fee simple of the family home to a daughter of the testator, “provided that my said son… may reside in the said house as long as he desires”. The question was whether the daughter might sell the property free of any right of the son. Menhennitt J at 354 said this:
“The right so given to the son is a right to reside personally in the house. Such a right, which has been commonly recognized in the decided cases, is often referred to as a personal right of residence. This expression means, I think, that the right is personal to the person given it and does not carry with it the right to let or to rents and profits. It is so used in contradistinction to a life estate. However, the expression personal right of residence as so used does not mean, it appears to me, a right in personam only as against the legal owner. The fact that it is often created expressly or impliedly as a trust demonstrates that it is more than a right in personam.”
Turning to the question then before the Court, his Honour said this (references taken to footnote)[25]:
“If the daughter desires to sell she must act in accordance with, inter alia, s. 107 of the Settled Land Act requiring her to have regard to the son’s interests. The proceeds of any sale by her are governed by the provisions of s. 75(5) and (6) of the Act which means that they must be held for and go to the same persons successively in the same manner and for and on the same interests and trusts as the house property.[26] Any difficulty in deciding the respective rights of the parties if they are unable to agree, can be resolved by a direction of the Court under s. 75(1).”
It was therefore contended that the proceeds of any sale of Netley should be dealt with in the same way.
[25][1970] VR 358-9
[26]See Re Trenchard, [1902] 1 Ch. 378; [1900-3] All ER. Rep. 289, and Re Simpson [1913] 1 Ch 277
I agree. If Netley was sold by the class members pursuant to s. 38 of the Settled Land Act the proceeds of the sale, as capital money arising under the Act[27] would fall to be dealt with under s. 75. Upon its investment any income would be paid in accordance with sub-s. 75(6) just as the income of the land, if not disposed of, would have been payable under the will, that is, to the class members collectively.
[27]See definition of “Capital money arising under this Act” in Settled Land Act 1958 s. 3(1)
If, on the other hand, Netley were sold by the Trustee pursuant to the authority conferred by the Court under s. 63 of the Trustee Act 1958 the proceeds of sale would be deemed to be capital money arising under the Settled Land Act[28] and the income would be dealt with in the same way.
[28]Settled Land Act s. 81
Conclusions
I propose, therefore, to make an order pursuant to s. 63 of the Trustee Act authorising the Trustee to sell Netley progressively as and when the need arises to meet the outgoings and the cost of upkeep of the property and provided there are no further other assets in its hands to do so. I will hear counsel further as to the precise terms of the order which is to be made.
On Day 3 of the trial, counsel for the minority class members sought to file a summons brought by their clients as “persons interested” and addressed to the Trustee. The summons seeks an order pursuant to s. 21 of the Settled Land Act authorising the Trustee to exercise the powers of a tenant for life, namely the power of sale under s. 38. The filing of this summons was resisted by the charities and, in any event, opposed by them and by the Trustee. As to this application, I say very little. It is unnecessary given the conclusions I have reached; it is misconceived, first, for the reason set out at paragraph [37] above and, further, because it has not been demonstrated that the class members collectively have not unreasonably refused to exercise the powers conferred upon them by the Settled Land Act. I refuse the application.
I have refrained until this point from referring in any detail to the questions submitted by the Trustee for the determination of the Court. Again on the last day of the trial, the Trustee proposed a fresh set of questions and invited me to answer them. As I then indicated, I will treat these as the questions for determination and will provide my tentative answers. I will hear counsel further as to the precise terms of the questions and answers in the light of these Reasons.
Question 1
(a)In the circumstances which exist does the plaintiff have power to effect the sale of whole or some part (and if so which part) of the property known as “Netley” referred to in the will of the late Clements Langford, deceased (“Netley”)?
Answer: Not otherwise than pursuant to the authority conferred by the order to be made herein pursuant to Trustee Act 1958 s. 63.
(b)In the circumstances which exist do the first to eighteenth defendants have power to effect the sale of whole or some part (and if so which part) of the property known as “Netley” referred to in the will of the late Clements Langford, deceased (“Netley”)?
Answer: Yes, provided they, or such of them as are then surviving, are in agreement and, further, provided they have the consent of the Trustee or an order of the Court pursuant to s. 38 of the Settled Land Act 1958.
(c)In the circumstances which exist do the nineteenth to twentyninth defendants have power to effect the sale of whole or some part (and if so which part) of the property known as “Netley” referred to in the will of the late Clements Langford, deceased (“Netley”)?
Answer: No.
(d)In the circumstances which exist does any other and if so which person have power to effect the sale of whole or some part (and if so which part) of the property known as “Netley” referred to in the will of the late Clements Langford, deceased (“Netley”)?
Answer: I decline to answer this question.
Question 2
(a)Will the proceeds of such sale form part of the residue of the Estate within the meaning of clause 12 of the Will of the testator?
Answer: No.
(b)Will the proceeds of such sale be capital money arising under the Settled Land Act 1958 within the meaning of section 75(5) of the Act?
Answer: Yes.
(c)Will the income derived from the proceeds of such sale be required by section 75(6) of the Settled Land Act 1958 to be paid wholly to the survivors for the time being of the grandchildren of the testator and after the death of the last such survivor to be paid wholly in accordance with the trusts of clause 12 of the Will of the testator?
Answer: Yes.
(d)Will the income derived from the proceeds of such sale be residue of the Estate subject to the trusts of clause 12 of the Will?
Answer: No.
Question 3
If a sale of part of Netley occurs, whether pursuant to an order of this Honourable Court or otherwise, prior to the death of the last surviving grandchild of the testator, should the plaintiff apply first the income and if exhausted then the capital derived from the proceeds of sale in meeting the expenses of maintaining Netley or so much thereof as for the time being remains unsold, including land tax and other imposts?
Answer: Yes.
The final matter is the question of costs. My tentative view is that the usual order in a proceeding of this nature should be made. The only hesitation which I have is whether the named charities and the unnamed charities, whose interests were identical, should have the costs of separate representation. I will hear counsel further as to this.
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