Royal Melbourne Hospital v Equity Trustees Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

No 7300 of 2004

THE ROYAL MELBOURNE HOSPITAL AND OTHERS (according to the Schedule)	Appellants
	v
EQUITY TRUSTEES LIMITED (as Trustee of the Estate of Clements Langford, deceased) AND OTHERS (according to the Schedule)	Respondents

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JUDGES:	ASHLEY and REDLICH JJA and BELL AJA
WHERE HELD:	MELBOURNE
DATE OF HEARING:	2 and 3 August 2006
DATE OF JUDGMENT:	22 August 2007
MEDIUM NEUTRAL CITATION:	[2007] VSCA 162

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Administration and Probate – Will made in 1928 – Testator’s death in 1930 - Land – Settled land – Direction that trustee retain land, and permit testator’s children and grandchildren to use, occupy and enjoy the same free of charge – Balance of estate no longer able to generate income sufficient to pay outgoings on land – No agreement between surviving grandchildren, as tenant for life under Settled Land Act 1958, for sale of all or part of land – Proceeding by trustee seeking conferral of power of sale of land pursuant to s 63(1), Trustee Act 1958 – Order made at first instance in reliance upon s 63(1) – Whether order able to be made under that section – Whether order made was too narrow – Whether any surplus income from sale proceeds should be distributed to surviving grandchildren or to residuary beneficiaries - Section 63(1) properly invoked – Broader power of sale should have been conferred – Provision should be made for investment of sale proceeds, for accumulation of income, and for income to be used to meet outgoings – Investment fund should be available to meet outgoings only as last resort – Any surplus income should be distributed amongst surviving grandchildren – Exercise of power by Court under s 63(1) Trustee Act with respect to any surplus income not dependent upon operation of Settled Land Act, but such distribution not incompatible with operation of that Act.

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APPEARANCES:	Counsel	Solicitors
Appellants	Mr G Uren QC with Mr H Fraser	Monotti (F R) & Co
First Respondent	Mr R A Brett QC with Ms K Anderson	Hicks Oakley Chessell Williams
Second to Fourteenth and Sixteenth Respondents	Mr S F McNab	Darrer Muir Fleiter
Fifteenth and Seventeenth Respondents	Mr N J O’Bryan SC With Mr J P Moore	Norton Gledhill
Eighteenth Respondent	Mr J O’Bryan	Victorian Government Solicitor

SCHEDULE OF PARTIES

IN THE SUPREME COURT OF VICTORIA AT MELBOURNE
IN THE COURT OF APPEAL – CIVIL DIVISION

BETWEEN:
ROYALMELBOURNEHOSPITAL	First Appellant
and
ALFREDHOSPITAL	Second Appellant
and
DEAF CHILDRENAUSTRALIA	Third Appellant
and
ROYAL VICTORIAN INSTITUTE FOR THE BLIND LTD	Fourth Appellant
and
ROYAL CHILDREN’S HOSPITAL	Fifth Appellant
and
BARNADO’S AUSTRALIA	Sixth Appellant
and
RIDLEYCOLLEGE	Seventh Appellant
and
ST STEPHEN’S ANGLICAN CHURCH, RICHMOND	Eighth Appellant
and
HOME MISSION FUND	Ninth Appellant
and
CHURCH MISSIONARY SOCIETY	Tenth Appellant
and
MELBOURNE ANGLICAN TRUST CORPORATION	Eleventh Appellant
and
EQUITY TRUSTEES LTD (as Trustee of the Estate of Clements Langford, deceased)	First Respondent
and
SHIRLEY IRENE SANDHAM	Second Respondent
and
DESMOND ALAN WENZEL	Third Respondent
and
GEOFFREY CLEMENTS WENZEL	Fourth Respondent
and
NEVILLE VICTOR ELGAR LANGFORD	Fifth Respondent
and
KEITH HOWARD LANGFORD	Sixth Respondent
and
DOUGLAS ROBIN BEER	Seventh Respondent
and
ALAN FINLAYSON BEER	Eighth Respondent
and
JOY EDITH NUTTER	Ninth Respondent
and
RAE HAZEL CURRY	Tenth Respondent
and
BETTY ANNE CAMPBELL	Eleventh Respondent
and
LESLIE CLEMENTS LANGFORD	Twelfth Respondent

and
MARGARET LUCILLE ROCKLIFFE	Thirteenth Respondent
and
NOEL LEWIS WILLIAM LANGFORD	Fourteenth Respondent
and
MAURICE ROBIN LANGFORD	Fifteenth Respondent
and
ANNETTE ROSEMARY TWIGG	Sixteenth Respondent
and
IAN FREDERICK LANGFORD	Seventeenth Respondent
and
ATTORNEY-GENERAL FOR THE STATE OF VICTORIA	Eighteenth Respondent

ASHLEY and REDLICH JJA:

We have had the advantage of reading in draft the reasons for judgment of Bell AJA. We gratefully adopt his Honour’s account of the circumstances which gave rise to this proceeding.

By answers to questions in proceeding 1975 No 2149 Dunn J held that Netley -by which we refer to the land described in clause 7 of the Will of the late Clements Langford - is settled land, pursuant to the provisions of the Settled Land Act 1958 (Vic) (“SLA”), and that the class constituted by the children and grandchildren of the testator are the tenant for life for the purposes of that Act. The parties to the present proceeding accepted that they were bound by those conclusions, and by others to which we will later refer.

It follows that the sale of all or part of Netley might have been undertaken in the circumstances set out in s 38 SLA. But this proceeding, brought by Equity Trustees Ltd (“the trustee”), was not a proceeding contemplated by that section.The two persons whom Bell AJA has described as the minority grandchildren did attempt, in the course of the trial, to obtain an order under s 21 of that Act authorising the trustee to exercise the power of sale of a tenant for life under s 38. But the learned judge held, correctly in our respectful opinion, that the application was misconceived.[1]
[1]Reasons for Judgment 24 March 2005, [64] and [37].

Consonantly with the nature of the proceeding brought by the trustee,[2] the orders made at first instance were founded on s 63(1) of the Trustee Act 1958 (Vic) (“TA”). The provision reads:

“(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 my 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]That is, Equity Trustees Ltd as the trustee of the estate, in whom the property was vested. It is beside the point that, for some purposes, a tenant for life exercising powers under the SLA is deemed to be in the position, and to have the duties and liabilities of a trustee. See s 107 SLA.

Rightly, in our opinion, no party claimed at trial or on appeal that s 63(1) could not be invoked because Netley is settled land.

The position adopted by the parties on the appeal

The appellants, the residuary beneficiary charities (“the charities”), contended before this Court that the order for sale made below pursuant to s 63(1) was too narrow. It would have the effect that Netley would in time be completely consumed in payment of land tax and other outgoings. Their primary position was that all of Netley should be sold. They also submitted that, if so much of Netley as the Court might order should be sold produced income from investment of the proceeds of sale which exceeded that which was necessary to meet outgoings, (“surplus income”) then that excess must be treated as residue, and be paid to them pursuant to clause 12 of the will.

The trustee and all the grandchildren ultimately agreed at trial[3] that “the power of sale should be limited to the sale only of sufficient property to meet the outgoings expected to fall due and payable within the ensuing 18 months.” But on the hearing of the appeal both the trustee and the majority grandchildren submitted that a broader power of sale should be conferred. The minority grandchildren, on the other hand, in essence maintained the position which they had advanced at trial. That is, they opposed the further sale of Netley, except as might be necessary from time to time to meet outgoings referable to the property.
[3]Reasons 12 August 2005, [1]. They reached this position only after the learned trial judge had handed down his first Reasons, in which he concluded that orders should be made under s 63(1).

A point of difference on the appeal between the trustee and the charities on the one hand, and the grandchildren on the other hand, was as to the disposition of any surplus income. The trustee, as well as the charities and the Attorney-General, argued that such a surplus should go to the appellants. All the grandchildren contended that, if there should be any surplus, then it should go to them.

Different Orders should be made under s 63(1) TA than were made at trial

We agree with Bell AJA that the jurisdictional requirements for the court’s exercise of power under s 63(1) TA were satisfied.[4] We also agree with his Honour’s conclusion that the learned trial judge was correct in exercising that power. Again, we agree with his Honour that the learned judge erred by confining the power of sale too narrowly.[5] We consider that a broader power of sale should be conferred upon the trustee. We consider that the trustee should be given a discretion as to the time and mode of sale of any portion of Netley – the exercise of that discretion to be always consistent with achievement of the principal purpose for which the power of sale is conferred. We are also of opinion that the terms in which the power is conferred must be such as will ensure that so much of the property on which stands the home, the tennis court and the beach access should be sold, if at all, then last.
[4]On the appeal, we note, only the minority grandchildren contended that there had been no occasion for the exercise of the power conferred by s 63(1). Counsel argued, as had been argued below, that the trustee had power under the general law to sell sufficient of Netley to meet debts incurred – and, as we understand the argument, anticipated outgoings in the short term. But that was not the substantive nature of the power of sale which was sought by any of the other parties.
[5]The form of the order which was made seems to reflect his Honour’s acceptance of the position taken by the trustee and (at least) the majority grandchildren at a resumed hearing on 6 May 2005. Reasons 12 August 2005, [1].

It was accepted by all the parties, if a broader power of sale was to be conferred upon the trustee, that orders for investment and accumulation of income should be made to facilitate its meeting an obligation under clause 7 of the will – that is, to pay such outgoings. Consistently with that position, we consider, to the extent that outgoings cannot be met from the other income of the estate, that they should be met out of income generated from the investment of the sale proceeds;[6] and - but only if the trustee is of opinion that it is necessary - out of the sale proceeds themselves. We also consider, in the latter eventuality, that the proceeds of sale should be depleted as little as possible. We finally consider that, in the circumstances which we later describe,[7] any surplus income from time to time should go to such of the grandchildren as are then living. We would so order even though, as the grandchildren progressively die, any surplus would be divisible amongst fewer and fewer persons. Such a regime, in our opinion, would best satisfy the legitimate interests of the grandchildren and the charities in circumstances where the making of an order pursuant to s 63(1) TA has been shown to be necessary.
[6]Although there was some divergence in the valuation evidence adduced at trial, and allowing for the fact that some part of Netley has since been sold, it still seems reasonably possible that a fund sufficient to generate income to pay outgoings could over a period be established whilst retaining a good deal of the property for use, occupation and enjoyment by the grandchildren. But whether that turns out to be so will depend upon a number of uncertain factors. The trustee is best equipped to make the necessary decisions in the circumstances pertaining from time to time.
[7]See [15].

Section 63(1) TA is a sufficient source of power to make all necessary orders

The conclusions which we have expressed need to be explained. That involves consideration of the reach of s 63(1) TA, and to an extent the relationship between that section and provisions of the SLA.

Section 63(1) TA has been construed as conferring on the Court a power which is very large.The Court is authorised to confer, inter alia, power of sale of trust property upon a trustee which presently lacks that power “on such terms and subject to such provisions and conditions (if any) as [it] thinks fit”. The Court may so act where it is of opinion that it is expedient in the management or administration of property vested in a trustee that there be a sale. Unless, in the present case, the trustee was given a sufficient power of sale, it is clear that over time the property would be consumed in payment of land tax and other outgoings. Thereby it would be lost to the use of the grandchildren, and as an important item of residuary estate. In our opinion, it is certainly expedient that a broad power of sale be conferred upon the trustee in these circumstances. The power should be exercised to achieve the outcome set out at [9].

In furthering the achievement of that outcome, we agree with the parties, as we have already said, that the Court should order that there be an accumulation of income from investment of sale proceeds; and the use of such income, after the use of other available income of the estate, to meet outgoings. It was implicit in the position adopted by the parties that the Court had power to make such an order under s 63(1).

It may be, with the passage of time, that investment of sale proceeds will produce surplus income. The issue was addressed by the parties - but not, we think, as fully as in the case of other matters the subject of submission. Probably this reflected a common view that surplus income was simply a possibility that could not be discounted.

We have referred to “surplus income” without describing how it should be determined that the same exists. In that connection, we consider that the trustee should be empowered to form an opinion whether any retained income from time to time will be, or is reasonably likely to be, required to meet outgoings in respect of Netley. Only any retained income which the trustee opines will not be so required should be understood to be surplus income.

Mention was made in submissions of the tontine effect which would result from an order that any surplus income be distributed amongst the grandchildren surviving at the time of the particular distribution. It was submitted for the trustee that the testator could not have intended such an outcome. The testator, of course, did not contemplate the sale of Netley, or parts of it, within the lifetimes of his children and grandchildren. On the other hand, he did envisage that the use, occupation and enjoyment of Netley would be to the benefit of an ever-decreasing number of grandchildren. It seems to us, in the event, that the order concerning any surplus income which we consider should be made is by no means inconsistent with the testator’s intentions.

The existence of surplus income would be a consequence of a regime created by s 63(1) – sale, investment of proceeds, and accumulation of income beyond that which was necessary to meet outgoings. It would not reflect a situation which could arise under the will unaffected by the exercise of power under s 63(1) – whether the will be viewed standing alone, or as affected by the decision of Dunn J, or as affected by the SLA.[8] Prima facie, because the exercise by the Court of power under s 63(1) would have produced surplus income, it should be held to be part of the exercise of power under that subsection to make provision for the disposition of such income.
[8]At least, in the last case, because the grandchildren could not agree upon a sale.

But is there any inhibition on the court making orders of the kind which we have described? The learned trial judge observed that, if Netley was sold by the trustee pursuant to an authority given under s 63(1) TA, “the proceeds of sale would be deemed to be capital money arising under the Settled Land Act,” and the income would be dealt with in the same way – that is, as under that Act. For the proposition that the proceeds of sale would be deemed to be capital money, his Honour referred to s 81 SLA, which reads as follows:

“Any money which after the commencement of this Act arises from settled land otherwise than under this Act, as well as any money or securities in the names or under the control of the tenant for life or the trustees of the settlement, being or representing money which had arisen before the commencement of this Act from the settled land otherwise than under the Settled Land Act 1928 or any corresponding previous enactment, and which ought, as between persons interested in the settled land, to be or to have been treated as capital, shall (without prejudice to any other statutory provisions affecting the same) be deemed to be or represent capital money arising under this Act, and shall be paid or transferred to or retained by the trustees of the settlement, or paid or transferred into court, and invested or applied, accordingly.”

There was virtually no argument in this Court about the reach of s 81. The trustee advanced a submission that the SLA had no relevance in the event of a sale pursuant to power conferred upon it by s 63(1) TA. The minority grandchildren responded that s 81 made the SLA relevant, and that the trustee had apparently overlooked that provision. The parties otherwise proceeded on the basis that s 81 was applicable.

The provision is quite old.[9] But whether because it has generated no case law, or perhaps for some other reason, it is the fact that we were not referred to any pertinent authority. In the event, and as a matter of statutory interpretation, we read s 81 as applying, according to its tenor, in either one of two situations:

· First, in respect of money which, after the commencement of the Act, arises from settled land, otherwise than under the Act.

· Second, in respect of money or securities which is or represents money which had arisen before the commencement of the Act from the settled land, otherwise than under the Settled Land Act 1928 or any corresponding previous enactment.

[9]It was s 81 of the Settled Land Act 1928 (Vic), and was in substance a replica of s 81 of the Settled Land Act 1925 15 Geo 5, Ch18.

The second situation is irrelevant in the present case; but the first is in point, as the proceeds of a sale authorized by s 63(1) TA should be described as moneys “arising from settled land otherwise than under the Act”.

It does not automatically follow from the fact that money or securities meet one or other of the descriptions which we have mentioned that the same “shall … be deemed to be … capital money arising under [the] Act, and … be … invested or applied accordingly”. For that to be required, the money or securities must be such as “ought, as between the persons interested in the settled land, … be or … have been treated as capital.”

But even then there is a qualification. The deeming effect of s 81 is expressed to be “without prejudice to any other statutory provisions affecting” the money or securities.

The genesis and purpose of SLA is described by Bell AJA. We agree with what his Honour says about those matters. The Act permits dealings in land which a particular settlement precludes. But it also delineates the detail and consequence of permitted dealings.

Section 81 SLA appears to carry that second aspect a stage further. Subject to more than one qualification, money arising from settled land otherwise than under the Act is to be deemed to be capital, and is to be dealt with by the trustee or the court accordingly.

In Re Pomfret’s Settlement, Roxburgh J observed that the English equivalent of s 81 “cannot assist the Court in determining what ought to be treated as capital.”[10] That would seem to be so. Guidance will be given by the circumstances in which the money has arisen from the settled land. Against that background of principle, we think that, ordinarily, the proceeds of sale of settled land ought, as between the persons interested in the land, be deemed to be capital money.[11]
[10][1952] Ch 48, 53.
[11]Cases more at the margin are noted in Halsbury’s Laws of England (4^th ed, re-issue), vol 42, [944], n 5.

But what of this case? The situation is one in which proceeds of sale would be generated pursuant to exercise of a power conferred by order under s 63(1) TA, that provision having been called into play in the absence of the trustee having any relevant power under the will, and in the absence of availability of recourse to any provision of the SLA. The consequence of the exercise of such power would be to deprive the surviving grandchildren, to an extent likely to increase with the passage of time, of the full enjoyment of a significant non-financial benefit that the testator intended they should have. Moreover, if the submissions of the trustee, the charities and the Attorney-General were correct, the consequence of treating the proceeds of any sale as capital money would be to add to the grandchildren’s loss of full enjoyment of the property a denial of entitlement to any surplus income in favour of the charities.

We consider that there was force to the submission for the grandchildren that, in circumstances where the assumed surplus was the product of a transaction never contemplated by the testator, the balance which the testator struck between the children and the grandchildren on the one hand, and the charities on the other, would most closely be mirrored by an order that any surplus go to the grandchildren; and that the Court could so direct in the course of an exercise of power under s 63(1) TA.

In our opinion, the Court’s apparent authority under s 63(1) to make the orders which we have foreshadowed is not denied by the SLA – at least in the circumstances of this case. Most broadly, the expansive language of s 63(1) justifies that conclusion. More narrowly, the Court might conclude that in this case the proceeds of sale ought not be treated, as between the persons interested in the land, as capital moneys. More narrowly still, the words in parenthesis in s 81 SLA may be read to authorise a particular order under s 63(1) in respect of the disposition of income, including surplus income, derived from the investment of sale proceeds.

We need go no further than conclude that the Court is empowered to make, and should make, an order under s 63(1) which deals with the question of any surplus income; but which is otherwise premised on the proceeds of sale being capital money.

Will any of the orders which the Court should make conflict with the operation of the SLA?

There was a good deal of argument in this Court which was premised on proceeds of sale being deemed to be capital money; and which sought to show that the disposition of such moneys, and in particular distribution of any surplus income to the charities or the grandchildren[12] was dictated by the SLA. For reasons which we have given, we do not regard the outcome which would be achieved by recourse to the SLA to be decisive of the powers of the Court under s 63(1) upon that matter. Nonetheless, we should address the issues raised.
[12]Whether the outcome was said to be that the grandchildren or the charities should enjoy surplus income depended on who was making the submission.

Treating the anticipated proceeds of sale as capital money, and focusing only on the SLA, s 73(1) would be pertinent. It relevantly provides –

“Capital money arising under this Act, subject to payment of claims properly payable thereout and to the application thereof for any special authorized object for which the capital money was raised, shall, when received, be invested or otherwise applied wholly in one, or partly in one and partly in another or others, of the following modes, namely: . . . ”

Then s 48(d) must be considered. It provides:

“On a sale, exchange, partition or other disposition or dealing under the powers of this Act -
…
(d) Where the sale, exchange, partition or other disposition or dealing is made with the consent of the trustees of the settlement the purchase and other consideration moneys shall be payable and paid to and received by the trustees and not the tenant for life or statutory owner and if made with the order of the Court then as the Court directs.”

That leads on to s 75(1), which is in the terms following:

“Except in cases under section 48(d) capital money arising under this Act shall, in order to its being invested or applied as aforesaid, be paid either to the trustees of the settlement or into court at the option of the tenant for life, and shall in all cases (whether under the said paragraph or not) be invested or applied by the trustees, or under the direction of the Court, as the case may be accordingly.”

Section 75(5) deals, inter alia, with the situation where capital money is translated into securities. This is what it says:

“Capital money arising under this Act while remaining uninvested or unapplied, and securities on which an investment of any such capital money is made shall for all purposes of disposition, transmission and devolution be treated as land, and shall be held for and go to the same persons successively, in the same manner and for and on the same estates, interests and trusts, as the land wherefrom the money arises would, if not disposed of, have been held and have gone under the settlement.”

We said earlier that in our opinion an order under s 63(1) TA should provide, inter alia, for the trustee to have recourse to the proceeds of sale to meet outgoings in respect of Netley so far as that might be necessary. An order in that form was made below. The grandchildren, at least implicitly, supported the making of an order to similar effect by this Court. The trustee’s position seemed to be the same. We think that such an order is compatible with the regime established by the SLA. Section 75(5) of that Act does not have the result that capital money is forever quarantined. So much appears, for instance, from s75(1) – albeit that it applies before investment –and from Part IV and s 114 of that Act. The order which we would make, then, is an instance of an exercise of power under s 63(1) TA informed by, or essentially consistent with, the SLA regime.

That takes us to s 75(6), which deals with the disposition of income from securities purchased with capital money. It reads –

“The income of those securities shall be paid or applied as the income of that land, if not disposed of, would have been payable or applicable under the settlement.” (our emphasis).

Section 75(6) SLA addresses an hypothetical situation. It treats the land as not having been sold, and then focuses upon who would have been entitled to the income of that land “under the settlement”. “Income” is defined by the SLA[13] to include, unless inconsistent with context or subject-matter, “rents and profits”.[14] Where second used in s 75(6), “income” would seem to carry that meaning.
[13]Section 3(1).
[14]The content of “rents” is clear enough. “Profits” would encompass, at least, moneys generated by the exploitation of resources on the land. See, for example, Grenville-Nugent and anor v Mackenzie and ors [1900] AC 83. There was no argument directed to the implications, if any, of the definition – as, for instance, whether the grandchildren must have had an entitlement to both rents and profits under the will if s 75(6) was to work to their advantage.

It was upon s 75(6) that the parties focused when dealing with the issue of surplus income.

The charities contended that they would be entitled to any surplus because the phrase “under the settlement” directed attention to the terms of the will. Under its provisions, they submitted, the grandchildren had no right to income from Netley. They were not life tenants strictly so-called. Persons who are not life tenants do not take income except if there be some special provision; and here there was none. Thus the grandchildren had no right under the will to lease the land; and absent such right, the starting point for an entitlement to rent did not exist. So, it was argued, the income deriving from investment of proceeds of sale must be dealt with under clause 12, and they, the charities, would be the rightful recipients of any surplus income. It mattered not that the grandchildren would have a right to lease the land under the provisions of the SLA. That said nothing about the beneficial interest in the proceeds of any lease.

The trustee submitted, that if s 75(6) applied, the grandchildren would not be entitled to all the surplus income. It would fall into residue. To hold that the grandchildren would be entitled to all the surplus would create a tontine effect. That could not have been the testator’s intent.

The Attorney-General submitted that clause 7 of the will did not give the grandchildren a right to income. Clause 12 of the will would prevail. The grandchildren and the charities would share in any surplus, the grandchildren’s overall share decreasing as one by one they died.

The majority grandchildren contended that any surplus should go to them. An order to that effect under s 63(1) TA would not alter the beneficial interests under the settlement as a whole. They would be getting, by way of income, the equivalent of physical use of the land during their lifetimes. They submitted also that s 75(6) SLA would produce that outcome. It would do so because the phrase “use occupy and enjoy” is understood to carry a right to income, and because neither a comparison of the language of clauses 6 and 7 of the will, nor the decision of Dunn J, would tell to contrary effect. The wording of the will created a statutory settlement which provided that the grandchildren should have the use occupation and enjoyment of the capital of the settlement presently represented by Netley.

Section 106 SLA could, if necessary, be called in aid .

The minority grandchildren also submitted that the language of use occupation and enjoyment carried with it a right to income. It was the fact, but it made no difference, that a similar right was conferred by the SLA.

We consider, on balance, that the application of the SLA would give the grandchildren the right to any surplus income. We have reservations that the approach taken by Bell AJA,[15] which focuses on the anti-avoidance provisions of that Act, provides a solution to the issue under discussion. Whilst it is correct to say that the anti-avoidance provisions of the SLA should be given liberal application, it is another thing to conclude, in effect, that they should be treated as a source of entitlements under that Act. For that reason, we prefer not to rest our conclusion upon those provisions.
[15]The gist of his Honour’s approach is that -
·Section 106 SLA deems void so much of the will as would preclude the grandchildren exercising powers under the Act – such powers including the power to lease the land and to receive income.
·The will, properly understood, does preclude the exercise of powers.
·Section 106 therefore has application.
·Section 75(6), when referring to income “payable or applicable under the settlement”, must be taken to refer to the settlement as affected by the anti-avoidance provisions.

Assuming for the present, as a matter of construction of the will, that the grandchildren were not entitled to income from Netley, by operation of s 41 SLA they could lease the land with the consent of the trustees or order of the Court. We see no reason to doubt that in such circumstances they would be entitled to the benefit of rent received. We agree with Bell AJA that the structure of the Act manifests an intention that this be so. Further, The Law of Real Property has stated consistently that “[t]he normal rule is that the tenant for life is entitled to the whole of the rent from leases of settled land.”[16] Still further, it would be a strange result if the SLA were to give the tenant for life a right – that is, to lease premises - which such person(s) did not possess under the will, and were then to say that the benefit of the right, once exercised, was to be determined by the provisions of the will - which had contemplated no right, and hence no income deriving from its exercise.
[16]3^rd ed, 1963; 5^th ed, 1984; 6^th ed, 2000.

The argument advanced for the charities that the benefit of rent deriving from a lease entered into under statutory power was to be determined by the will unaffected by the SLA was a way of meeting a difficulty which they faced concerning the operation of s 75(6) SLA. According to their argument, in effect, the destination of income from investment of capital money was to be determined according to the provisions of a will which had not contemplated the existence of the transactions giving rise to that capital money. But if the beneficiary of rent which equally arose out of transactions not contemplated by the will was the statutory tenant for life, there would be an obvious disconformity in outcome. The consequence of what we have said is that, if the meaning given by the charities to s 75(6) is correct, there would be that disconformity.

That invites the question whether the phrase “under the settlement” in s 75(6) should be read as the charities – supported by the Attorney-General and, provisionally, the trustee – contended for. We think, if this was a clean slate, that there would be much to commend such a construction, which has found favour with Bell AJA. The phrase “under the settlement” appears in both s 75(5) and (6). One would expect it to carry a like meaning in those closely related provisions. In the former, the phrase seems naturally to refer to a settlement unaffected by the SLA. But we think it is significant that we were referred to no case in which income earned on investment of capital moneys has been held to go other than to the statutory tenant for life – whether as income, or in the form of an annuity.[17] We should say that from the very earliest times in the history of this kind of legislation there has been a predecessor of s 75(5) and (6).[18] Cases to which we were referred, a number of them of considerable antiquity, rested upon a statutory provision identical to s 75(6). In the event, we think that it is now too late to accept and act on the meaning of s 75(6) contended for by the charities, even if we were of opinion that such meaning was correct. On that footing, we would hold, in the hypothetical situation contemplated by s 75(6), that income of the land would be payable to the grandchildren. It would follow that an order made under s 63(1) TA that the grandchildren should be entitled to any surplus income would be compatible with their entitlement by operation of s 75(6) SLA.
[17]Instances of income being applied in that way are to be found in In re Paget’s Settled Estate (1885) 30 Ch D 161, In re Trenchard[1902] 1 Ch 378 and In re Simpson [1913] 1 Ch 277. In Dodsworth v Dodsworth (1973) 228 EG (Estates Gazette) 1115 Russell LJ stated the proposition as if it was beyond argument. That was an obiter dictum. But it was cited by Dillon LJ, without adverse comment, in Costello v Costello (1995) HLR (Housing Law Reports) 12 at 17.
[18]See s 22(5) and (6) of the Settled Land Act 1882, 55 and 56 Vict c 13.

Thus far we have assumed that, under the will, the grandchildren were given no right to income of the land. But is that assumption correct?

It will be remembered that by clause 7 of the will the trustees were directed to retain Netley, to pay all rates, taxes charges and so on, and – critically – “to permit my children and my grandchildren … to use occupy and enjoy the same free of charge according to such arrangements as my trustees shall decide.” The question which arises, in considering the assumption to which we referred a moment ago, is whether the testator’s direction to permit his children and grandchildren the use, occupation and enjoyment of land carried with it the right to income.

Dunn J concluded that the class of children and grandchildren was not a class of life tenants. That conclusion is not open to challenge, and it was not challenged. His Honour also held, in the course of his reasons for judgment, that the effect of the clause was to give the class “an exclusive right of residence during the life of any member of the class”. That was all that he had to decide in order to conclude, as he did, that the land was settled land and that under the SLA the class “not only has the powers of the tenant for life but is to be treated as the tenant for life”. He did not have to decide, not did he purport to decide, whether the class members had a right to income from the land during their lives. The pertinent question, and his Honour’s answer, were simply as follows:

“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?
Answer - The right to use occupy and enjoy the said property. But not a life interest strictly so called.”

Whilst, then, his Honour held that clause 7 gave the class “an exclusive right of residence”, it is not the case that thereby the word “reside” was substituted into the clause in place of the words “use occupy and enjoy”. The import of those words, in our opinion, remains relevant to the question whether the class members have a right to income under the clause.

We were referred to cases which have considered the import of phrases such as “use, occupy and enjoy”, “use and occupy”, “free occupancy”, and the import of verbs such as “occupy” and “reside”. In a number of those cases it was held that the devisee was authorized to sell or lease the land.[19] But that was so because the devisee was the tenant for life under the SLA or its English equivalent. They are not helpful in understanding the content of the phrase “use occupy and enjoy” apart from the legislative overlay.
[19]We instance In re Paget’s Settled Estates [1885] 30 Ch D 161, In re Trenchard [1902] 1 Ch 378, In re Simpson [1913] 1 Ch 277, In re Gibbons [1920] 1 Ch 372, Re Patten [1929] 2 Ch 276, In re Acklom [1929] 1 Ch 295.

It has also been held that the phrase “use and occupy” prima facie confers a life estate, and so gives a right of personal residence and a right to receive rents.[20] But that does not provide the answer to the issue which we are considering, for Dunn J held that clause 7 does not confer a life estate on the class.
[20]Re Hillier (1939) 39 SR (NSW) 71, 74.

The relevant position may be that described by Cussen J in The Equity Trustees Executors & Agency Co Ltd v Buckhurst, where his Honour said this:[21]

“On the one hand it was said that the words ‘use and occupation’ had come by judicial construction to mean that a person having the right to the use and occupation had also the right to let the house and retain the rent. On the other hand it was contended that although these words prima facie confer such a right, they do not amount to more than an expression of intention, which can be controlled by the intention to be gathered from the rest of the will; that is not a rule of law, but merely a rule of construction. I think that the latter view is the right one, and although if these words had stood alone I think the widow would have been entitled to let the house, I do not think in this case she is so entitled, because there are coupled to the words ‘use and occupy the same’ the addition ‘for a home’. And there are other provisions in the will which confirm this construction. I think that, reading the will as a whole, the testator intended that his widow should reside as ‘Goodrest’. It has always been held that a provision giving a right of residence does not give a right to let.”

[21](1907) VLR 252,257.

What his Honour there said did not depend upon characterising the devisee as a life tenant in order that a right to income be discerned. Further, Buckhurst antedated the enactment of the SLA in this State.

His Honour’s approach was, we think, consistent with In re Anderson,[22] where Sergeant J had to consider a direction that the testator’s widow should be entitled to “use and occupy” his residence “for her own personal use and occupation”. Considering the matter apart from the English Settled Land Act, his Lordship concluded that the last cited words showed that only a right of personal use and occupation had been granted to the widow. He said this:

“Is there anything in the authorities cited to displace that view? In my judgment there is not. The authorities rather support the conclusion at which I have arrived. In Rabbeth v Squire Lord Chelmsford L.C. decided that a gift by will of the joint use and occupation of lands did not require personal use and occupation but permitted the donees to let the lands. But he pointed out that that was the effect of the gift of the use and occupation, and especially that there was nothing in the terms of the other parts of the will that would reduce that general right to a right of personal use and occupation. It seems to me be clear that if, either in consequence of the context or by virtue of the terms of the original gift, what had passed to the claimant had been the right of personal use and occupation, the decision of Lord Chelmsford would have been the other way.
In the same way, in May v May Fry J. decided that a power given to a testator’s wife to reside in the testator’s house did not include a right to her to let the house and receive the profits. On the other hand, in Mannox v Greener a ‘free occupancy’ of a house was held to allow letting; but that does not seem to be analogous to the present case as the others which I have dealt with. The reasoning in Rabbeth v Squire and the decision in May v May really render it indisputable that a gift of a right personally to use and reside in a house cannot carry with it the right to live elsewhere and to let the house and receive the rents.”[23]

[22][1920] 1 Ch 175.

[23]Ibid 181-182.

We think that the reasons for judgment of Bryson J in Hatzantonis and anor v Lawrence,[24] where a testator gave a direction concerning “right of usage” of premises, do not sit comfortably with the approach commended by Cussen J. Although Bryson J recognised that “even if the will did no more than confer on [the devisee] some licence or permission, the question is to be answered by determination of the effect of the licence or permission on entitlement to receive income”,[25] he treated cases such as Buckhurst as standing for the proposition that the right to income depended upon the devisee being passed an estate in the land.[26] But nothing was said about that matter by Cussen J; nor was such a rationale advanced in In re Anderson, or in the cases there cited.
[24][2003] NSWSC 914.
[25]Ibid [5].
[26]Ibid [17].

If it is correct to conclude that the phrase “use occupy and enjoy” may give an entitlement to income without there having been the creation of a life estate, the question which follows is whether the language of clause 7, considered in the context of the will as a whole, gave such an entitlement. The argument that it did not do so essentially depended on a comparison of the language of clauses 6 and 7.

We have already set out the relevant parts of clause 7. The language of clause 6 was pertinently this: “I direct my trustees to permit my niece ... to have the free use occupation and enjoyment or the rents and profits derived from my freehold property known as ‘The Elms’ … during her life.” It was submitted that the absence of the words “rents and profits” in clause 7 gave rise to the inference that the children and grandchildren were not entitled to income.

The approach of Cussen J in Buckhurst obliges consideration of the entirety of the will in order to see what meaning should be assigned to the critical words in clause 7. In that way, it is relevant to consider the language of clause 6. Such an approach does not mean that the meaning of the critical words in clause 7 is to be ascertained within the framework of the maxim expressio unius est exclusio alterius – although the result might be the same on either approach.[27]
[27]That maxim can have application in a testamentary context. Playoust v Hornsby (2005) 11 VR 504, 513[21]. Nonetheless, it is a maxim which should be applied with caution, “only when the intention it expresses is discoverable upon the face of the instrument”: Houssein v The Undersecretary, Department of Industrial Relations and Technology and anor (1982) 148 CLR 88, 94: and where the implication is a necessary one: Daniels Corporation v ACCC (2002) 213 CLR 543, 560 (Gleeson CJ, Gaudron, Gummow and Hayne JJ).

In the present case there were differences in the character of the properties the subject matter of clauses 6 and 7, a large difference in the prospective lengths of the use, occupation and enjoyment of those properties, and a large difference in the number of those who were able to benefit from the respective directions. Those differences have led us to conclude – whilst acknowledging the force of the contrary argument, which Bell AJA has accepted - that the language of clause 6 does not stand as a reliable indication that the testator did not intend, by clause 7, to give his children and grandchildren an entitlement to income from Netley.

Giving the critical words in clause 7 a meaning which, then, is available, we are of opinion that under the will the grandchildren are entitled to the income from Netley. Thus, the hypothetical exercise required by s 75(6) SLA – assuming for the present that it requires consideration of the destination of income provided for by

the will itself - would result in their being entitled to the income from invested proceeds of sale. It follows that it would be compatible with the SLA for the Court to order under 63(1) TA that any surplus income be distributed to the grandchildren living at the time of such distribution.

We should mention one final matter, albeit briefly. If it was right to conclude that the grandchildren were given a right to income of the land by the will, it would not follow that there was no call for the application of s 63(1) TA. The need for that section to be invoked was not precipitated by the absence of a provision in the will which addressed the question of distribution of income.

Orders

The parties should bring minutes of proposed orders into Court.

BELL AJA:

INTRODUCTION

The late Clements Langford built a stately holiday house for his family on a cliff top in Sorrento. He called it Netley.

When Mr Langford died in 1930, he left his valuable estate, including Netley, to various beneficiaries. His will gave his descendants the right to use Netley free of charge for two generations. It then allowed Netley to be sold for the benefit of the residual beneficiaries, including the Royal Melbourne Hospital and a number of other specified charities.

The children have all died, so the first generation has ended. Of the second generation, 16 are still living. Actuarially speaking, the last of these grandchildren is expected to live until 2030. Netley, however, cannot survive this long intact. The estate is now reduced to that property, which means it is asset rich and income poor.

Because of land tax which the estate cannot otherwise afford to pay, Netley has to be sold off lot by lot, a process that has already begun.

Physically, Netley comprises a number of lots – a large one with a house and tennis court and several others which are just vacant land.

Equity Trustees Ltd is the trustee of the estate. The charities want Equity Trustees to be able to sell the Netley lots in a managed way, with the house lot coming last, so the land tax burden can be minimised. Equity Trustees agrees. The surviving grandchildren would then have at least the house and its tennis court, which are the best features of the property, probably for longer, and something would be left over for the charities when the grandchildren die. As to income arising from the investment of the proceeds of the sale of the lots, including the house lot if this becomes necessary, the charities and Equity Trustees say that, once any tax and other expenses have been paid, the income must be accumulated or, alternatively, paid into the residual estate, not paid to the grandchildren. This, it says, is the result demanded by the terms of the will.

The grandchildren are split on one thing and united on another.

A majority – 14 - say Netley should be sold in a managed way, as Equity Trustees proposes. A minority – two - say the lots should be sold only when required to meet expenses, such as land tax, even if this means there will be nothing left for the charities. This minority insists the grandchildren’s interests under the will are paramount and those of the charities subordinate. To sell any part of Netley before it is strictly necessary would elevate the interests of the charities and relegate those of the grandchildren.

All the grandchildren are united in saying that any income arising from the investment of capital money should go to them, not to an accumulating fund and not to the residual beneficiaries. They dispute Equity Trustees interpretation of the will and, in the alternative, rely on certain provisions of the Settled Land Act 1958.

Equity Trustees applied to a judge of this Court for an order under s 63(1) the Trustee Act 1958 giving it the necessary power to sell the lots and for a declaration that any income should go into the residual estate. The charities supported the application, the minority grandchildren opposed it entirely and the majority grandchildren opposed it only as to the second part. His Honour decided that an order conferring such a power would be expedient and should be made, although in terms much narrower than those sought by Equity Trustees. He also decided that any income should go into the residual estate, after allowing for expenses due or expected within 18 months.

Pursuant to the judge’s order, Equity Trustees has sold some of the Netley lots and used the proceeds to pay the outstanding land tax and other expenses. No-one seeks to undo any of this. The position, at least for the present, is stable.

But, say the charities and Equity Trustees, the judge’s orders did not address Netley’s financial problems in the long term, and could make matters worse. Supported by Equity Trustees and the Attorney-General, the charities now appeal to this Court for orders of the kind that the trial judge refused. The appeal raises a number of important issues which I will deal with under these headings:

·     Does Equity Trustees already have the power sought?
·     The importance of considering the interests of both the grandchildren and the charities.
·     Should Equity Trustees be given power to sell part or all of Netley under the Trustee Act?
·     The treatment of income arising from the sale of the Netley lots under the Settled Land Act.

DOES EQUITY TRUSTEES ALREADY HAVE THE POWER SOUGHT?

Section 63(1) of the Trustee Act allows the Court to confer on a trustee power to deal with trust property in a manner that is expedient in the management or administration of the property. The power that can be conferred is a power of “sale, lease, mortgage, surrender, release or other disposition, or any purchase, investment, acquisition, expenditure or other transaction …” The power can only be conferred when “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 …” Thus it is a jurisdictional requirement that the trustee must not already have the power it seeks.[28]
[28]Riddle v Riddle (1952) 85 CLR 202, 214, 219.

The minority grandchildren submitted that s 63(1) does not permit the Court to confer the power sought by Equity Trustees because it has two alternative sources of power. These are, first, a power of sale conferred by the will and, second, a right of indemnity to recover any land tax or other expenses that have to be paid.

For the existence of existing powers to be a bar to the application of s 63(1), the scope of the existing powers must be at least “the same” as the power sought. It is therefore necessary to compare the scope of the existing powers with the scope of the powers sought. Unless the existing powers permit the trustee to carry out the dealing that the Court considers expedient, they will not be “the same” as the powers sought.

It is convenient to begin by identifying the scope of the power sought. This is the power to sell the Netley lots in a managed way so as to reduce the incidence of land tax, to maximise the period for which the house and tennis court, at the least, will be available for use by the grandchildren and, finally, to ensure there is something left for the benefit of the charities when the last grandchild dies. In short, the powers are sought to put the estate, within a prudent time-frame, in a position of financial self-sufficiency, a position where the expenses, including land tax, can be paid out of recurrent income. Therefore the scope of the power sought is not simply to sell parts of Netley as and when needed to meet inevitable expenses. It is a power to sell the Netley lots in a managed way so as to achieve specified objectives, which may involve selling some of the lots to avoid, not just meet, such expenses.

The first existing power relied upon by the minority grandchildren is the power of sale in the will. The trial judge concluded there was no express power in the will to sell all or part of Netley. With respect, this conclusion was correct. Clause 16 gives Equity Trustees “the power to sell realise and convert any or all of my assets securities or investments at any time either by public auction or private contract and upon such terms and conditions both as to payment or otherwise as my trustees may deem available …” This is a general power of sale. Such a power has to be read with the other terms of the will. Clause 7 specifically directs Equity Trustees to retain Netley “to permit my children and my grandchildren … to use and occupy and enjoy the same free of charge according to such arrangements as my trustees shall decide.” By reason of this clause, the grandchildren have the right to use, occupy and enjoy the property free of charge.[29] The general power of sale in cl 16 cannot be used in a manner that would defeat the right of use and occupancy in cl 7. Until the death of the last grandchild, cl 16 does not permit the sale of any part of Netley, which is what Equity Trustees asks the Court to authorise. Therefore the power of sale in the will is no bar to the application s 63(1).
[29]Equity Trustees Executors and Agency Company Limited v Wenzel (15 July 1976, Supreme Court of Victoria, Dunn J), 3-4.

The second existing power is Equity Trustees’ “right of indemnity over trust property in respect of liabilities incurred by [it] in the administration of the trust …”[30] The minority grandchildren submit[31] this power is amply sufficient to meet the substance of what Equity Trustees wishes to do. They say the need to sell parts of Netley has arisen because of the liability of the estate for land tax. To address that problem, Equity Trustees can use its right of indemnity to sell Netley off, lot by lot, as and when needed to pay the tax.
[30]Octavo Investments Pty Ltd v Knight (1979) 144 CLR 360, 371.
[31]By notice of contention dated 19 July 2006 under r 64.17(5) of the Supreme Court (General Civil Procedure) Rules 2005.

Equity Trustees’ right of indemnity as trustee cannot be doubted, but the scope of this right is much narrower than the scope of the power sought. The right of indemnity is a right to recover the costs of administering the trust from the trust property, which implies the costs will be met, and recovered, as and when the need arises. The power sought is a power of managed sale before any land tax liability arises, which implies the proceeds will be invested. These are two different things so, again, the right of indemnity is no bar to the application of s 63(1).

THE IMPORTANCE OF CONSIDERING THE INTERESTS OF BOTH THE GRANDCHILDREN AND THE CHARITIES
The narrow approach of the trial judge

The trial judge treated the grandchildren’s interests under the will as paramount, and those of the charities as subordinate. For this main reason, he did not give Equity Trustees the full powers of managed sale that it sought, only powers of much lesser scope.

So that his Honour’s decision can be fully understood, I will identify more fully the powers that were sought and the powers that he granted.

The powers sought by Equity Trustees were very similar to those sought by the charities and the parties supporting them in the appeal. These are the essential features of those powers:

·     Equity Trustees should be able to sell such parts of Netley as are necessary to minimise the potential exposure of the property to land tax, to maximise the period for which the grandchildren will be able to use the house and tennis court and to maximise the value of the assets that will be left for the benefit of the charities when the last grandchild dies. The lot with the house and tennis court should be sold last.
·     Equity Trustees should be able to carry out these sales when commercially prudent to do so, having regard to the state of the market. It should not have to sell in response to an actual or immediately expected land tax liability.
·     Equity Trustees should be able to invest the proceeds of the sale of the lots up to but not including the house lot, and use the income to meet the land tax and other expenses of the property. Any excess would be accumulated or paid into the residual estate. It is implicit in this proposal that the excess would not be paid to the grandchildren except to the extent that they were also residual beneficiaries.
·     Equity Trustees should be able to sell the house lot if, because the funds arising from the earlier sale of the other lots were insufficient, this becomes necessary to meet the land tax or other expenses.

The powers granted by the trial judge were specified in his order of 26 August 2005. These are the essential features of the order:

· Equity Trustees could sell such parts of Netley as were necessary to meet the costs and expenses of maintaining the property, including land tax, where the funds available from the estate were otherwise insufficient to do so.

·     Equity Trustees could choose which lots to sell first, but the house and tennis court had to come last and no more could be sold than would be necessary to meet present costs and expenses or those reasonably expected within 18 months.
·     Equity Trustees could accumulate any income from the investment of any left over proceeds of sale to meet costs and expenses reasonably expected within 18 months.
·     Any income left over after that had to be paid into the residual estate.

To return to his Honour’s decision, he accepted it was expedient for Equity Trustees to sell more of Netley than might be needed to satisfy immediate land tax and other expenses of the property. This is why he gave it the power under s 63(1) of the Trustee Act to sell part of Netley to meet liabilities both due and expected within 18 months. But to do more than this, he concluded, would alter the balance of interests between the grandchildren and the residual beneficiaries under the will.

His Honour considered the interests of the grandchildren to be superior because the will gave them the express right to use, occupy and enjoy Netley free of charge for life. The interests of the charities were “subordinate” because the will gave the residual beneficiaries the residue, being what was left over after the other terms of the will had been fulfilled. As he saw it, if more of the property could be sold than was needed to meet a debt already due, or expected within 18 months, the grandchildren would lose the benefit of the part sold, which would defeat the right they had, during their lives, to enjoy the property as a whole.

For the same reason, the trial judge would not confer a managed power of sale on Equity Trustees so it could ensure something would be left for the residual beneficiaries after the grandchildren died. If the compulsory progressive sale of parts of Netley to pay land tax and other expenses meant that, eventually and inevitably, there would be little or nothing left for the residual beneficiaries, this was because their interests under the will had to yield to the interests of the grandchildren.

The charities and the parties supporting them submit the trial judge’s conclusion in this respect was incorrect and, in consequence, the approach he adopted to the application of s 63(1) was also incorrect.

The dual intentions of the testator as expressed in the will

By the terms of the will, the grandchildren are beneficiaries with vested life interests in the use and enjoyment of Netley and the charities are beneficiaries with contingent interests in the estate in remainder. Thus the grandchildren and the charities are both objects of the testator’s bounty. That is the broad scheme of the will, but it is necessary to look at the detail.

The will is complex and balances the provision made for Mr Langford’s family with the provision made for the broader community. Immediate financial provision was made for his family and other persons close to him. Long-term provision was made for his selected charities. The will dealt with Netley in a way that reflected this policy of balance.

The will made immediate financial provision for Mrs Langford, Mr Langford’s children, a sister, two nieces and a sister-in-law. As to his descendants, the will stopped at the second generation - the grandchildren.

The will made specific provision for several close friends and trusted employees of Mr Langford, and 12 named charities, including his church, St Stephen’s, in Richmond, near where he lived. The list of charities was obviously selected with care. Mr Langford also went to some trouble to specify both what the charities would be entitled to and how that entitlement would grow over time.

As to the time period over which the will made provision, the will created immediate or near-immediate legacies of 1000 pounds in two payments for his wife and children. Legacies of 100, 200 and 500 pounds were given to nieces and other persons. Mr Langford’s sister and sister-in-law were left annuities of three and two pounds per week for life.

The will gave a niece a life tenancy of his freehold property “The Elms” on The Vaucluse in Richmond. The right given to Mr Langford’s children and grandchildren to use and enjoy Netley was expressed in more limited terms, a matter of some significance, as we will see.

Mrs Langford was left the household furniture, the motor cars and specified company shares.

The will left to the Vicar at St Stephen’s a freehold property in Richmond, also known as Netley, to be used if possible as a hostel for men and/or women or, if necessary, to be sold for that Church.

The will created these specific bequests in a total amount that fell far short of the value of Mr Langford’s large estate. The remainder was called “residue”, and it was dealt with in cll 12, 13 and 14, which I will describe in detail. They are as balanced in terms and intent as the specific bequest clauses that precede them.

The residue included Netley (Sorrento) after the death of the last grandchild. Because the will allowed the executors to get in and convert the assets of the estate into an investable fund, the residue also included the income arising from that fund. Until the death of the last grandchild, Netley could not be sold in this way, as I have already concluded. But after this event, it would fall into residue, at which point it could be sold, and the proceeds invested, like any other estate asset.

Clause 12 directs the trustees “to stand possessed of the whole of the residue of [the] estate upon trust to pay or apply any income from time to time resulting therefrom” in the following manner:

·     as to one-tenth, to charities named in cl 13, in the proportions there set out.
·     as to one-tenth, to Mrs Langford for life and, after that, to the charities.
·     as to the remaining eight-tenths, one-tenth each to Mr Langford’s children for life and, after that, to their children if any for life or, if a child died childless, to the charities.
·     as to any one-tenth share devolving to a grandchild or grandchildren, on their death, to the charities.

Under cl 12, the charities on the one hand and Mrs Langford and the descendants of Mr Langford on the other are therefore dealt with in an importantly different manner.

The charities’ share of the income from residue contains both a fixed and upwardly variable component. The fixed component is one-tenth, and represents the minimum. The variable component comes from the additional one-tenth shares of Mrs Langford, and the children and grandchildren that would, over time, devolve to the charities. Under the will, the right of the charities to a fixed one-tenth share of the income from the residue would, with the death of Mrs Langford and the last surviving grandchild, grow into a right to the whole of that income in perpetuity. Mrs Langford and the children and grandchildren got no more than a right to a one-tenth share of the income for life.

Clause 13 directs the trustees to stand possessed of the income from the residue funnelled to the charities by cl 12 “upon trust for the following charitable institutions and charitable purposes …” The clause then names the charities and their shares in the income. Most of them have different names now but, using their original names, the charities, and their specified shares, are:

·     Melbourne Hospital, five parts.
·     Alfred Hospital, five parts.
·     Deaf and Dumb Asylum, five parts.
·     Blind Asylum, five parts.
·     Children’s Hospital, five parts.
·     Dr Barnardo’s Home in London, 15 parts.
·     Ridley College, 10 parts.
·     St Stephen’s Sunday School, three parts.
·     Church of England Home Missions Fund, 10 parts.
·     Church Missionary Society of the Church of England, 15 parts.
·     Clements Langford Trust, 20 parts which, under cl 14, had to be paid to the Diocesan Trustees of the Church of England for the Diocese of Melbourne to be invested to produce income for making allowances or supplementary allowances to retired clergy of that Church in that Diocese.
·     other charitable purposes chosen by the trustees, two parts.

The various parts add up to 100 so they are really percentage parts of a whole.

In life, Mr Langford was a master builder, indeed he built spires for cathedrals.[32] The buildings he left behind reveal his vision and industry. The terms of his will reveal he also wanted to leave behind something more, a trust with an enduring income, one that could be used to better the lives of people whose lives were far less fortunate than his had been. For reasons I will soon give, I think this is relevant to the exercise of the court’s power under s 63(1) of the Trustee Act.
[32]Clause 13(a) records the agreement of Mr Langford’s son, George, “to carry on my work in connection with the erection of the Cathedral Spires”.

With this understanding of the will, we can now return to Netley.

The will gives the children and grandchildren the right to use the property for life (cl 7), after which it falls into residue (cl 12). Once in residue, it can be sold to free up capital money which can be invested to supply an income stream to the charities (cl 13). We can therefore see two intentions running in the will, and Netley was central to the achievement of both.

Why the interests of the charities must be taken into account under s 63(1) of the Trustee Act

The term “residue” is not defined in the will, but, as a matter of general law[33] and the proper construction of the will, it means everything left over after specific bequests have been fulfilled. Therefore, even if I might prefer to say the interests of the grandchildren are vested and those of the charities are contingent, I cannot not cavil with the judge’s description of the interests of the charities in Netley[34] as subordinate, for the left-overs are what they are to get.
[33]Cock v Aitken (1908) 6 CLR 290, 297.
[34]The charities had an immediate entitlement to residue under cl 12(a) of the will, though not in respect of Netley.

Accepting that description, the fact remains that s 63(1) of the Trustee Act confers on the Court a statutory power to allow trustees expediently to manage and administer trust property. With respect I cannot agree that the proper exercise of this power in the present case can be governed by a formal classification of the interests of the relevant beneficiaries as paramount and subordinate respectively. A trust may create a diverse range of relevant interests which may all have to be considered in determining what is expedient in the management or administration of the property. Where the trust creates both vested interests in the capital and contingent interests in the residue, the interests of the remaindermen have to be considered.

Let me dig in the soil of the decided cases to discover how the interests of remaindermen have been taken into account.

In Riddle v Riddle[35] Williams J held that, in exercising the expedience power, the “Court would have to take into account the interests of the life tenants and remaindermen …” His Honour observed that consideration may reveal the order “would benefit the remaindermen at the expense of the life tenants.”[36] Then there is Re Craven’s Estate.[37] In this case Farwell J refused to authorise a risky transaction in favour of a primary beneficiary because it would jeopardise “a substantial part of the trust funds to which [the remaindermen] may ultimately become entitled.” Re Fell was a case where Ostler J assessed whether the transaction was a wise thing in the interests of all the parties, who included “all the beneficiaries, certain and uncertain, sui juris, infant and to be born”, those interested in income and those interested in capital.[38] And in Re Forster’s Settlement,[39] Harman J authorised a transaction to stop the annual wastage of trust property, “so preserving something for the remaindermen.” These authorities support my conclusion.
[35](1952) 85 CLR 202, 224.
[36]Ibid.
[37]Re Craven’s Estate; Lloyds Bank v Cockburn (No 2) [1937] 1 Ch 431, 437.
[38][1940] NZLR 552, 554.
[39]Re Forster’s settlement; Michelmore v Byatt [1954] 3 All ER 714, 720.

I would hold that, when exercising the expedience power in this case, it is a mistake to examine the nature of the interests created by the trust within a narrow paramount-subordinate paradigm. As we will see, the question is what is expedient in the management or administration of the trust property. In deciding that question, it is necessary to take into account the interests of the trust as a whole, which means the interests of the beneficiaries collectively, whether their interests be vested or contingent. Where beneficial interests may be differently affected by what is proposed, all interests must still be considered. Doing so may reveal it is possible to confer an expedient power in terms that preserve the balance of interests created by the trust or at least holds the scales fairly between the various beneficiaries.

Likewise, I would reject the submission of the charities that the intentions of Mr Langford, as revealed by the terms of the will, are irrelevant to the exercise of the discretion in s 63(1). I think the true position is that the exercise of the discretion is informed but not governed by the settlor’s expressed intentions. Of course, where the expedience of the circumstances demands, a power of dealing may be conferred even though it involves “a departure from the expressed intentions, if any, of a testator or settlor.”[40] In such circumstances, the power may be used to add to or even override the powers supplied by the trust instrument.[41] But it is always necessary to consider the interests of the trust as a whole or, put another way, the interests of all of the beneficiaries (see further below). As the settlor is the author of that trust and has specified those interests, this necessarily involves considering his or her intentions.
[40]Re Baker [1961] VR 641, 646.
[41]Riddle v Riddle (1952) 85 CLR 202, 223.

A little more digging exposes many cases involving the exercise of the expedience power where the courts have taken the expressed intentions of the settlor or testator into account. For example, there is Re Walker.[42] This was the case in which Farwell J made this oft-cited and still authoritative observation: “I decline to accept any suggestion that the Court has an inherent jurisdiction to alter a man’s will because it thinks it beneficial. It seems to me that is quite impossible.”[43] His Lordship was asked to allow a trustee to spend more money to keep up an estate than was specified in the will. He took into account the “two intentions” he saw “running side by side in this will.”[44] I have picked up that language in the present case. He also repeatedly referred to the testator’s “contemplation.”[45] In Re Dehnert[46] Starke J refused to exercise or confer power allowing the trustee give the charities access to the capital of the residuary estate because the will gave “a clear indication of the testator’s intention” that they were only entitled to income. In Perpetual Trustee v Godsall[47] Rath J, against the submissions of the trustee, conferred a power to sell a property in terms that benefited the remaindermen “because the testator obviously intended that the remainder interests would receive a property that had been kept in good repair and condition …” With respect, the trial judge was correct to say, on this subject, that he was concerned with the “intention” and “wishes” of the testator as expressed in the general scheme and terms of the will.
[42]Re Walker; Walker v Duncombe [1901] 1 Ch 879.
[43]Ibid 885.
[44]Ibid 886.
[45]Ibid 886.
[46][1973] VR 449, 451.
[47][1979] 2 NSWLR 785, 794; see also 793 where there is reference to the “testator’s intention to impose a personal obligation” with respect to the question of repair.

To return to Mr Langford’s will, the grandchildren’s right of use and enjoyment of Netley for life obviously takes precedence over the interest of the charities in the sense that the trustees cannot sell Netley while even one grandchild is alive to enjoy that right. But the terms of the will also show Mr Langford intended that, when all the grandchildren have died, the property could be sold so the charities would benefit from the income arising from the invested proceeds. When exercising the power in s 63(1) to address the problems confronting the management and administration of the estate, it is necessary to take into account the dual intentions running through the will, which means the interests of all of the beneficiaries have to be considered, including those of the remaindermen.

In exercising power under s 63(1), the trial judge did not exactly ignore the interests of the charities. Indeed he devoted some time to identifying the nature of those interests. However, once he characterised the interests of the charities in rank legal terms as subordinate to the paramount interests of the grandchildren, he allowed this characterisation to govern his exercise of the power.

His Honour’s approach in that respect prevented him from considering whether, in the interests of the beneficiaries as a whole, it was expedient to confer the power of managed sale that Equity Trustees was seeking, even accepting that such a power might involve some interference with the enjoyment of the beneficial rights of the grandchildren. To explain why will require a much longer stop at a station later in these reasons, but my view is that it is appropriate to confer that power despite that interference.

The power that the trial judge had under s 63(1) was discretionary. With respect, by exercising the power in the way that he did, his Honour’s exercise of the discretion miscarried.[48]
[48]House v The King (1936) 55 CLR 499, 505.

It therefore becomes necessary to consider whether, on a proper exercise of the power, Equity Trustees should be given power to the full extent sought.

SHOULD EQUITY TRUSTEES BE GIVEN POWER TO SELL PART OR ALL OF NETLEY UNDER THE TRUSTEE ACT?
The problems raised by the liability of Netley to land tax

At the time of the trial, Netley consisted of six individual titles. These are the details:

(1)Part of Crown Allotment 96E and 98, Parish of Nepean, County of Mornington, comprising all of Certificate of Title Volume 734 Folio 741. This is the main title and includes the house and tennis court. This title is subdivided into lot 1 (close to and including the house and tennis court), lot 2 (vacant land next to lot 1) and Lot 3 (vacant land next to lot 2 and fronting onto Point Nepean Road).
(2)Part of Crown Allotment 96E, Parish of Nepean, County of Mornington, comprising all of Certificate of Title Volume 2132 Folio 350. This is a large title next to the main title and is close to the cliff edge.
(3)Part of Crown Allotment 96E, Parish of Nepean County, of Mornington comprising all of Certificate of Title Volume 8052 Folio 265. This is an irregular title that includes the cliff edge.
(4)Part of Crown Allotment 96E, 97A and 98, Parish of Nepean, County of Mornington, comprising all of Certificate of Title Volume 8052 Folio 266. This title relates to a roadway and right of way and is irrelevant for present purposes.
(5)Lots 48-54 on Plan of Subdivision No 2369 all comprised within Certificate of Title Volume 10472 Folio 597.
(6)Lot 47 on Plan of Subdivision No 2369 comprising all of Certificate of Title Volume 10472 Folio 596.

At that time, the total area of land comprising Netley was about 1.7 hectares excluding the roadway and right of way and the irregular cliff top parcel. These are the details of the individual lots:

Lot No

Area

Hectares

Improvement

Title Particulars

Main

0.73

House and tennis court

Vol 0734 Fol 741

42

0.15

Vacant land

Vol 2132 Fol 350

47

0.13

Vacant land

Vol 10472 Fol 596

48

0.14

Vacant land

Vol 10472 Fol 596

49

0.13

Vacant land

Vol 10472 Fol 596

50

0.12

Vacant land

Vol 10472 Fol 596

51

0.08

Vacant land

Vol 10472 Fol 596

52

0.07

Vacant land

Vol 10472 Fol 596

53

0.07

Vacant land

Vol 10472 Fol 596

54

0.07

Vacant land

Vol 10472 Fol 596

Other

-

Vacant land

Vol 10472 Fol 596

TOTAL

1.7

The court held the daughter was a tenant for life under the Settled Land Act because she was entitled to possession, albeit not exclusive of the son’s right of residence. The son was not a tenant for life because he had a mere personal right of residence which “does not carry with it the right to let or to rent and profits.”[155] The son’s personal right of residence was “used in contradistinction to a life estate.”[156]
[155]Ibid 354.
[156]Ibid.

In the relevant passage, Menhennitt J said this:

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: see Re Trenchard[157] … and Re Simpson[158] …[159]

[157][1902] 1 Ch 378.

[158][1913] 1 Ch 277.

[159]Ibid 358.

The trial judge took the view that income arising from the proceeds of sale of Netley should be dealt with in the manner specified by Menhennitt J in Re Potter, by which I take him to mean that the proceeds had to “be held for and go to the same persons … and … for and on the same interests and trusts as the house property.”[160] But Menhennitt J did not explain what he meant by those words, which just picked up the language of s 75(5) and (6).
[160]Ibid.

The trial judge explained his view by reference to the case of selling Netley under s 38 and to the case of leasing it under s 41.

As to selling Netley, this is what his Honour concluded (I have omitted a footnote):

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 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.

This is his Honour’s conclusion in relation to leasing Neltey:

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 that pursuant to cl. 7.

Consistently with these conclusions, the trial judge had stated earlier in his decision that, as the grandchildren were tenants for life under the Settled Land Act, s 41 allowed them to lease Netley and, if they did, they might receive the rents. His Honour concluded income arising from a court-authorised sale of Netley under s 63(1) of the Trustee Act should be dealt with in the same way.

In the appeal the grandchildren supported the trial judge’s reasoning. They submitted he correctly construed the relevant provisions of the Settled Land Act.

The other parties, however, launched a powerful attack on the trial judge’s reasoning. They submitted neither s 38 nor s 41 of the Settled Land Act had anything to say about what should happen to the proceeds, or income arising from the investment of the proceeds, of a sale or lease of settled land.

Section 38 provides a “tenant for life with the consent of the trustees of the settlement or order of the Court – (a) may sell the settled land, or any part thereof …” Section 41 provides a “tenant for life may with the consent of the trustees of the settlement or order of the Court … lease the settled land, or any part thereof …” It was submitted these provisions, in the specified terms, conferred on a tenant for life the authority to sell or lease the land, but did not deal with the disposition of the proceeds.

It was then submitted s 75(5) and (6) required the proceeds and the income to be “held for and go to the same persons successively, in the same manner and for and on the same estates, interests and trusts” as were specified in the settlement with respect to the land concerned. Thus the proceeds and the income followed the trusts in the settlement, not the powers of sale and lease conferred by the Settled Land Act. Those trusts – the ones created by Mr Langford’s will - did not give the grandchildren any entitlement to the income of Netley. It had to follow, they submitted, that s 75(5) and especially s 75(6) did not give the grandchildren any entitlement to income arising from the proceeds of a court-enforced sale.

I accept some but not all of these submissions. It is correct Mr Langford’s will did not give the grandchildren any entitlement to the income of Netley. I have already stated my reasons for this conclusion. It is also correct the will did not give the grandchildren any power of sale or lease of Netley. Again, I have already dealt with this issue. It follows that any power of sale or lease was statutorily conferred by the provisions of the Settled Land Act, for example by s 38 and ss 41 and 42. It is correct that these sections do not specify the destination of the proceeds of any sale or lease. And, no doubt, the proceeds of a sale of settled land will usually represent capital money arising under the Act which must be dealt with according to ss 73-75. But I do not accept a tenant for life who uses the power to lease settled land is not entitled to the rent. Let me give my reasons.

As I have said, the provisions that confer the power to lease do not specify that rent is capital money arising under the Act. A number of provisions suggest, under the Act, rent is not capital money.

By s 42(4), a fine received on the grant of a lease is deemed to be capital money, but a fine is a payment for getting a lease, not rent.[161] No provision deems rent to be capital money for general purposes. Many provisions keep rent out of general money deemed to be capital money for specific purposes.[162] Section 90(1) confers a power on a tenant for life, with the consent of the trustees or the court, to enter into and vary a lease. Section 90(5) makes it clear the rent is not capital money. Section 39(2) deals with the payment of the price for the sale of settled land. It deems some payments of rent to be payments of principal and therefore capital money. Section 47 requires the capitalisation of part of the rent from mining leases, leaving the rest to be rent.
[161]See the definition of “rent” in s 3.
[162]See ss 53(7), 61, 80(1).

I think, unless it provides otherwise, the Act assumes rent will be paid under a lease of settled land according to its nature, that is, an exchange of the lessor’s right to exclusive possession for the lessee’s payment of rent. Under the Act, the tenant for life, not the trustee, is the lessor. Therefore the tenant for life, personally, in the absence of contrary provision, gets the rent. Since the policy of the Act is to encourage tenants for life to put land to productive use, this is to be expected. Under the scheme of the Act, personal receipt of the rent is one incentive held out to tenants for life to lease settled land. With respect, the trial judge was right on this issue, and the submissions to the contrary of Equity Trustees, and the parties supporting it, must be rejected.

Therefore, the premise on which I approach the important issue as to the destination of income arising from a sale is that, under the Settled Land Act, the grandchildren are entitled to the most important potential source of income from Netley – rent.

This conclusion does not fully dispose of the submissions of the other parties. They say, even if the grandchildren have a statutory power to lease Netley and get the rent, it does not follow that, under s 75(5) and (6), they get income arising from a sale.

The answer to this submission lies in the proper construction of s 75(5) and (6). In so doing, it is necessary to take the anti-avoidance provisions in s 106 into account, which takes me to the English cases.

The operation of s 75(5) and (6) in the context of the anti-avoidance provisions

We have seen s 75(6) of the Settled Land Act requires income from invested securities to “be paid or applied as the income of the land, if not disposed of, would have been payable or applicable under the settlement.” We have also seen s 106(1) makes void any provision in a settlement that, if I may summarise this long provision, directly or indirectly interferes with the exercise of the statutory powers of the tenant for life. Section 106(2) preserves the interest of the tenant for life in money arising from the exercise of these powers.

In my view, s 75(6) must be read with s 106(1) and (2). The words “would have been payable or applicable under the settlement” in s 75(6) refer to “the settlement” as it operates in the context of the statutory scheme. Under that scheme, tenants for life have certain powers, for example, to lease and obtain rent, which are not to be ignored when applying s 75(6). Under s 106(1), the exercise of those powers cannot be interfered with, even indirectly, which also is not to be ignored when applying s 75(6). If an offending provision of a settlement is void under s 106(1), “the settlement” in s 75(6) is the settlement with that provision excluded, taking into account the statutory preservation of the interests of the tenants for life in the relevant income.

That the Settled Land Act operates in this manner is made clear by the English cases, of which the following are examples.

In Re Trenchard[163] the testator gave his wife the right to use his residence, but only as long as she should desire to make it her permanent place of residence. There was a residue clause in favour of the testator’s children and grandchildren. The wife found the house to be too big so she and the other beneficiaries asked the court for permission to sell it in return for which she would get an annuity for life. The court had to decide whether to exercise the power in the Trustee Act 1893 (UK) to approve what would be a compromise of the wife’s rights under the will.
[163]Re Trenchard; Trenchard v Trenchard [1902] 1 Ch 378.

The court approved the arrangement. The requirement that the wife permanently reside in the residence was held to be void under s 51(1) of the Settled Land Act 1882, the equivalent of s 106(1) of the Victorian Act. It was held that, under s 51(2) of the former, the equivalent of s 106(2) of the latter, there would be an exchange of the right of residence for the annuity. As a tenant for life, the wife had the power of sale, and the annuity would represent in money terms the value of her right of residence:

In other words, she can sell; and if she sells she will be entitled as against the proceeds of sale to the same annual benefit (which must then be represented by money) as if she had not sold … The result of s. 51 is that the provision, as far as it is a fetter upon the power or sale, is void; and under sub-s. 2 of that section a new estate is given to the beneficiary by virtue of the statute extending to a like interest in the proceeds of sale.[164]

[164]Ibid 383. A similar result was reached on a different basis in Re Simpson; Clarke v Simpson [1913] 1 Ch 277. The will gave the widow the right to occupy a leasehold during her widowhood. She lived in it for 14 years then sold it as a life tenant under the English legislation. Swinfern-Eady J held she was entitled to have the purchase money applied in such manner as would give her a benefit like the one she had got from the lease and therefore she was entitled to an annuity: 282. But his Honour did not proceed under s 51 as he was of the view that the circumstances did not come within its scope: ibid.

Notably, the court implicitly accepted the applicant’s submission that the power to approve a compromise under the Trustee Act could not be interfered with by a “side issue” arising under the Settled Land Act.[165]
[165]Ibid 381.

In Re Paget’s Settled Estates[166] the will gave the testator’s son a right of use of a landed estate for life, but only so long as he resided in the testator’s house or some other part of the estate for not less than three months of the year. The son wanted to sell the house and take the income arising from the proceeds of the sale for his life.
[166](1885) 30 Ch D 161.

The court approved this arrangement also. It held the son had the powers of a tenant for life and declared the residence condition void. He could sell the property and, under the statute, had a continuing interest in the proceeds of the sale:

It is impossible to say that this clause, which defeats the estate of the son, in case he fails to comply with the condition as to residence, does not tend to induce him to abstain from exercising the power of sale which is conferred on him by the Act. The condition is therefore made void by sect. 51, and, if the son exercised the power of sale, his interest in the proceeds of sale will by virtue of sub-sect. 2 continue. [167]

[167]Ibid 164-165.

In Re Acklom[168] the will gave the testator’s sister a right of residence in a house “to have the use and enjoyment thereof during her life free of rent or other payment …” The sister had to go abroad for her health. When she returned she sold the house as a tenant for life. A question arose whether the proceeds should go to her or the residual legatees who, coincidentally, where charities. It was contended she had relinquished her right of residence.
[168]Re Acklom; Oakeshott v Hawkins [1929] 1 Ch 195.

The court held the sister had properly exercised the power of sale and the proceeds were hers to enjoy for life:

There is no doubt at all that under s. 106 of the Settled Land Act, 1925,[169] which applies to the provisions of wills made before or after the Act, a provision which limits or prevents the tenant for life from exercising his power of sale is void. Accordingly it is reasonably clear to my mind in this case that if [the sister] was in a position to exercise the powers of a tenant for life [on the critical date], a provision whereby the proceeds of sale should under the terms of the will pass to the charities is void. [170]

[169]The equivalent of s 106 of the Victorian Act.

[170]Ibid 198-199.

Finally there is Re Patten.[171]Here the will gave the testator’s niece use of a house and furniture “free of cost for her occupation during her life or so long as she may require them, but without power to sub-let the same or any part thereof …” The niece wanted to lease out the house.
[171]Re Patten; Westminster Bank Limited v Carlyon [1929] 2 Ch 276.

Even though the will did not give the niece the power to lease, just as Mr Langford’s will does not give the grandchildren the power the lease, the court held that, as a tenant for life, the niece could do so. The limitation on her right of possession that she had no power to sub-let was held to be void:

There is nothing in these provisions purporting or attempting to forbid [the niece] to exercise any power under the Act except the direction that she shall not have power to sub-let. That provision obviously falls within para. (a) of [s 106] and is to be deemed void. [172]

[172]Ibid 280.

And the rent? She was held to be entitled to it. By virtue of paragraph (b) of s 106 of the UK Act of 1925, which is the equivalent of s 106(2) of the Victorian Act, her interest in the house took –

effect as an estate or interest to continue during her life or until she shall cease to occupy for any reason other than the exercise by her of any of such powers. If therefore [she] in exercise of such powers should let or sell the house she will be entitled to receive during her life the rent or the interest of the proceeds of sale, as the case may be.[173]

[173]Ibid 281.

In each of these cases, the conclusion that the tenant for life was entitled to income arising from the sale or lease of the settled land was based on the application of the anti-avoidance provisions in the statute, not a specific clause in the will creating such an entitlement. In all of them, the English equivalent of s 75(5) and (6) of the Victorian Act required capital money to be invested in securities to be held under the same estates, interests and trusts for which the will made provision (s 75(5)) and required the income to be paid as the income of the land would be paid under the will (s 75(6)). No case discussed the application of these provisions. They were all decided under the equivalent of our s 106(1) and (2). Neither the wife in Re Trenchard, the son in Re Paget’s Settled Estates nor the sister in Re Acklom had a power of sale under the will. The wills made no provision for the application of income arising from such a sale. In Re Patten, which is the closest analogy to the present case, the niece had no power to lease and therefore had no entitlement under the will to any rent. In each case, the tenant for life was held to have the relevant statutory power of dealing, any implied or express limitation on that power was deemed to be void and the tenant was held to have a life interest in the money arising from the dealing that substituted for their life interest in the property under the will.

Under the Settled Land Act, the grandchildren get the income

I have held that the grandchildren do not have the power under Mr Langford’s will to lease Netley, but that under the Settled Land Act they do have that right. Under the will they do not have the right to receive the rents arising from the lease of Netley, but under the Act they do have that right. By virtue of s 106(1) of the Act, any direct or indirect interference by the will with the exercise of the rights of the grandchildren to lease Netley is void. The limitation in the will – by omission – on the right of the grandchildren to receive rent from the lease of Netley plainly falls into this category. A provision that denies the tenants for life the rent from the lease of settled land operates as a disincentive to lease that land. Therefore, under the Act, the grandchildren have the power to lease Netley and to receive the rent from so doing, despite the provisions of the will.

If that conclusion is correct, as I think it must be, it is necessary to take it into account when applying s 75(6) in the present context.

The problem I am dealing with arises because income may arise from the investment of the proceeds of all or part of Netley while a grandchild with a right of occupancy – a tenant for life under the Act – is still alive. Taken on its own, s 75(6) would deprive the grandchild of the income because the income of the land was not so payable under the settlement. Yet s 106(1) and the other provision of the Act operate to give the grandchild the right to lease the land and receive the rent.

It would be absurd to treat the tenants for life as having capacity to deal with the land and take the fruits of so doing under s 106(1) and, for example, ss 38 and 41, yet treat them as having no entitlement to income arising from the investment of the proceeds of the sale of the land by reason of the restrictive nature of the settlement and the operation of s 75(6). In the construction of s 75(6) that I prefer, the words “would have been payable or applicable under the settlement” take account of the operation of s 106(1) and (2) on the settlement. If, as in the present case, the provisions of s 106, together with s 41, operate to give tenants for life under a will the right to lease and be paid the rent for settled land, the income of the land “is payable or applicable under the settlement” in their favour under s 75(6). Therefore, in such a case, where income is produced from the investment of capital money arising under the Act, that income must, under s 75(6), be paid to the tenants for life, who, in the present case, are the grandchildren.

In making an order under s 63(1) of the Trustee Act for the expedient management or administration of the trust property, I would take the application and operation of the Settled Land Act, as I have explained it, into account. Therefore, I would make an order in terms that allowed for the accumulation of income, but only to the extent necessary to ensure the trust becomes self-sufficient. Once, in the opinion of Equity Trustees, that point is reached, any surplus income must be paid to the grandchildren, to whom it would have flowed under the Settled Land Act.

CONCLUSION

Netley, a property with a stately holiday house on a cliff top in Sorrento, and the last valuable asset in the estate of the late Clements Langford, is being consumed by land tax. Despite the recent sale of some of its lots, a substantial part, including the house and tennis court, remains for the grandchildren who, under the will, have the right to use and enjoy it for life. But lot by lot the property will inevitably have to be sold, a process that has already begun, until even the house and tennis court are gone. If this is allowed to happen, nothing will be left for the charities who, also under the will, were intended to benefit from the residual estate in remainder.

To preserve the house and tennis court for the grandchildren for a long as possible, and to ensure something was left over for the charities, Equity Trustees asked the court to exercise the power in s 63(1) of the Trustee Act 1958 to confer a power of managed sale of Netley. The trial judge conferred a power of sale, but in much more limited terms. His Honour’s view was that going further would reduce the grandchildren’s interests under the will, for their entitlement was to use and enjoy Netley as a whole.

The charities appealed against that decision. In the appeal, they submitted Equity Trustees should be given the full power of managed sale that the judge refused at trial. They were supported in all respects by Equity Trustees and the Attorney-General and in most respects by 14 of the 16 surviving grandchildren. They were opposed in all respects by the two minority grandchildren. The grandchildren were united in submitting that income arising from the sale of the Netley lots should, after paying land tax and other expenses, go to them.

The power in s 63(1) is available only when a trustee does not otherwise possess the power it needs to deal with the trust property in the manner proposed. Equity Trustees has a limited power of sale under the will and also a trustee’s usual power of indemnity in respect of liabilities. In my view those powers do not equate to the power of managed sale sought by Equity Trustees, and the trial judge was right to so decide. Therefore the foundation for the application s 63(1) has been established.

The trial judge treated the charities’ interests under the will as subordinate to the interests of the grandchildren. With respect, I think there are two intentions running in the will. Thus, first, it confers on the grandchildren an immediate right to use and enjoy Netley until the last of one of them dies and, second, it confers on the charities a contingent right to the income of the estate in remainder. I think the power in s 63(1) has to be exercised, as far as possible, in a manner that takes these two kinds of interests into account. The trial judge erred in treating the immediate interests of the grandchildren as the critical consideration.

Section 63(1) permits the court to confer a power of dealing where it is expedient in the management or administration of the trust property. With respect, the trial judge was correct to confer a power of sale, but he did not go far enough. It was expedient to confer a full power of managed sale to reduce the land tax burden, for this would ensure the house and tennis court were preserved for the use and enjoyment of the grandchildren for the longest period, and also ensure something was left over for the charities when the last grandchild died. Such a power could be conferred even though its impact would be relatively positive for the charities and relatively negative for the grandchildren, for it was in the interests of the beneficiaries as a whole, and the exercise of the power in this way would hold the scales fairly between them.

I would confer on Equity Trustees sufficient power to allow it to sell the several lots of Netley, with the house and tennis court coming last, so as to create a capital fund from whose income land tax and other expenses could be paid – in other words, so as to ensure the estate became financially self-sufficient. If it is initially necessary to allow capital monies to be used to meet estate debts, I would allow that also. Equity Trustees should have a discretion to determine the timing and order of sales, for this will be a matter for judgment having regard, among other things, to the state of the market. Equity Trustees should have a power to accumulate income, but if, in its opinion, more income is produced than is needed to meet actual land tax or other expenses, or those reasonably anticipated in the future, the surplus should go to the grandchildren, for the power in s 63(1) is for the expedient management of trust property, not the alteration of the beneficial interests it creates.

It is relevant to take account of the position of the grandchildren under the Settled Land Act 1958. Under that Act, because they are beneficially entitled to possession of Netley, they are the statutory tenants for life, which means they are entitled to receive its income, particularly its rent. Under the will, they do not hold the position of a true life tenant, but the anti-avoidance provisions of the Settled Land Act protect their statutory entitlement to the income of Netley so that, under that Act, they must be treated for all purposes as if they had that entitlement. That entitlement can and would be affected by the order I would make under s 63(1) of the Trustee Act, but the existence of the entitlement is one reason why the grandchildren should get any surplus income.

I would therefore uphold the charities appeal. I would make an order under s 63(1) of the Trustee Act conferring a power of managed sale of Netley on Equity Trustees in the terms set out in these reasons. I would answer the questions in the appeal accordingly.

Lot No	Area Hectares	Improvement	Title Particulars
Main	0.73	House and tennis court	Vol 0734 Fol 741
42	0.15	Vacant land	Vol 2132 Fol 350
47	0.13	Vacant land	Vol 10472 Fol 596
48	0.14	Vacant land	Vol 10472 Fol 596
49	0.13	Vacant land	Vol 10472 Fol 596
50	0.12	Vacant land	Vol 10472 Fol 596
51	0.08	Vacant land	Vol 10472 Fol 596
52	0.07	Vacant land	Vol 10472 Fol 596
53	0.07	Vacant land	Vol 10472 Fol 596
54	0.07	Vacant land	Vol 10472 Fol 596
Other	-	Vacant land	Vol 10472 Fol 596
TOTAL	1.7

[2007] VSCA 162

22 August 2007