ARMSTRONG V THE CHILDRENS HOSPITAL AT WESTMEAD & ORS [2008] NSWSC 1315

Supreme Court of NSW|2008-12-12|Before: Bryson AJ, Wills P

The application of these rules is often attended with very great difficulty, as the number of cases found in the books upon the subject, not always very easily reconcilable with each other, sufficiently testifies … 15 It appears from these authorities, and it is the well-established modern position that the primary source for conclusions about the meaning of a will is the terms of the will itself, not judicial experience relating to other documents containing similar expressions or even the same expressions. The need to have regard to the whole terms of a will, everything in it, and to understand the basic scheme to which the testator was giving effect may mean giving different force to a provision in the very same words it may have had in another will. 16 A reference in a will to "the rest and residue of my estate" indicates in its ordinary and natural meaning that other dispositions in the will are to be satisfied before the rest and residue of the estate is to be ascertained. This simple logic underlies the general approach in which other gifts including pecuniary legacies are paid before the rest and residue is ascertained, and the common interpretation that pecuniary legacies are paid out of residue, not a completely accurate expression of what takes place. Clause 34 does not conform with the ordinary pattern, or with any provision which I have ever encountered, in that it specifies and describes a particular property as part of the residuary gift. This is a marked contrast with ordinary ideas about what is the residue of an estate; there is no need to specify what forms the residue or part of it; the residue is simply whatever is not disposed of in some other way. In logic, if what was intended was a residuary gift as ordinarily understood, the references to the house and contents are superfluous, as no other disposition in the will deals with the house and contents, and if they were not specifically mentioned they would pass under the general words "the rest and residue of my estate both real and personal of whatsoever kind and nature and wheresoever situate". The following words "including but without limiting the generality of the foregoing" do not convey any meaning which does or could possibly extend the range of assets disposed of by earlier words of cl 34. People do not usually put provisions in their wills unless they inted them to mean something. 17 I am left with a choice among these conclusions: · the home and contents were referred to give effect to some testamentary intention specific to them; · the reference to the home and contents was made for abundant caution and does not express any intention particular to them about the disposition of property. · the references to the home and contents are included in the will for no purpose at all. 18 Strict logic is not a sure guide to the construction of this provision, because it would lead to the conclusion that the references to the home and contents add nothing to the earlier words, and were not intended to achieve anything. In terms of the way in which people use language this is a very unlikely conclusion; when people say something they usually say it for a purpose, especially in their wills. 19 In my view the terms of cl 34 give special force to the testator's indication of her intention that the house and contents should pass to Mr and Mrs Campbell, giving emphasis and reinforcement to the statement of her intentions to that effect which is not given by cl 34 to the provisions generally relating to the rest and residue. It is clear that everything disposed of by cl 34 is made subject to payment of the liabilities referred to. On the other hand I regard it as also correct, in reading cl 34, to understand that the testator intended the house and contents specifically to pass to Mr and Mrs Campbell, and that this expression of intention would be defeated by applying to that gift a qualification which reduced its beneficial effect, except as to the liabilities referred to.

20 In the terms of the will there is no reference to any means or measures to raise additional money, by selling one or both the houses or in any other way. The bank accounts are not mentioned in the will. There is no power of sale, no direction for sale, no direction to convert any asset into money and no indication that the testatrix intended that any asset should be or could be sold. Statutory power of sale is available to the executrix; s 46 of the Wills Probate and Administration Act 1898. 21 In its terms cl 34 does not make any provision for payment of legacies out of residue. Clause 34 makes "the rest and residue of my estate both real and personal … etc" subject to payment thereout of the estate liabilities referred to; it does not say that the rest and residue of the estate is subject to payment of legacies. 22 On a whole view of the will, it appears that it was written on an assumption that at the time of the testatrix' death there would be funds available in her estate out of which the legacies could be paid; that the legatees would be given money which the testatrix had and could dispose of. 23 There was obviously an assumption by the testatrix that enough assets would be available to carry out all the gifts fully. The only express qualification to this is the qualification making residue subject to liabilities. It is very usual to find that wills make dispositions of pecuniary legacies and also residuary gifts, and that the legacies are brought into account in determining what the residue is. However whether or not this usual approach is applicable depends on the terms of the will under consideration. Until changes in the law in the 19th century it was not usual that pecuniary legacies, or for that matter debts and liabilities, were payable out of real property owned by a testator. There were payable only if, by the will or in some other way, the testator had made some disposition which was clearly intended to subject real property to personal obligations. The law was radically changed in the 19th century. A large part but not all of the transformation was the legislation known as Locke Kings' Act, now represented in New South Wales by s 145 of the Conveyancing Act 1919. Real property and other property which is subject to a mortgage debt or unpaid purchase price is given subject to that burden, which is not paid off out of other assets in the estate. This transformed the law and the motivation for people making will s to make expressions of intention if the intention was to the same effect as the enactment. 24 The legislation which represents this change for the purpose of Mrs Hayward's estate is s 46C Wills Probate and Administration Act 1898 and Part II of the Third Schedule of that Act. s 46C (1) Where the estate of a deceased person is insolvent his real and personal estate shall, subject to the provisions of the Commonwealth Bankruptcy Act 1924-1929, be administered in accordance with the rules set out in Part I of the Third Schedule to this Act. (2) Where the estate of a deceased person is solvent his real and personal estate shall, subject to the provisions of any Act as to charges on property of the deceased and to the provisions, if any, contained in his will, be applicable towards the discharge of the funeral, testamentary, and administrative expenses debts, and liabilities, payable thereout in the order mentioned in Part II of the Third Schedule to this Act. (3) In this section -

"deceased person" means a person dying after the commencement of the Conveyancing (Amendment ) Act 1930.

"solvent" means sufficient and "insolvent" means insufficient for the payment in full of the debts and liabilities of the deceased person. Schedule 3 Part II Order of Application of Assets where the Estate is Solvent 1. Assets undisposed of by will, subject to the retention thereout of a fund sufficient to meet any pecuniary legacies. 2. Assets not specifically disposed of by will but included (either by a specific of general description) in a residuary gift, subject to the retention out of such property of a fund 'sufficient' to meet any pecuniary legacies, so far as not provided for as aforesaid. 3. Assets specifically appropriated or disposed of by will (either by a specific or general description) for the payment of debts. 4. Assets charged with or disposed of by will (either by a specific or general description) subject to a charge for the payment of debts. 5. The fund, if any, retained to meet pecuniary legacies. 6. Assets specifically disposed of by will, rateably according to value. 25 The application of the Third Schedule is by s 46C(2) "… subject to … the provisions, if any, contained in [the] will." 26 Mrs Hayward's estate is solvent, in fact she had no significant debt, and s 46C and the Third Schedule do not in their terms deal with subjecting property to obligations to pay legacies. However a rather complex body of law has developed in the interpretation and application of this and similar legislation. 27 Notwithstanding the limitation of the provision of s 46C to the subject of payment of debts, it is in my opinion established by an obiter dictum in Fowler & Anor v Nield [1961] SR (NSW) 152, a decision of the Full Court, the precursor of the Court of Appeal, that the order of application of assets in Pt II of the Third Schedule applies in the application of assets in payment of legacies, as well as in the application of assets in payment of liabilities. I examined this elaborate subject at considerable length in Matthews v Whittaker (unreported, 15 March 1988) BC 880 2127, and in a further judgment (unreported 19 May 1989) BC 890 2152. I regarded it as established by judicial authority that, in the words used by Walsh J at 159 "The effect of the legislation is to place real estate upon the same footing as personal estate in relation to its applicability for the payment of debts and, it would seem, for payment of legacies. This assimilation has not always been treated as complete but it appears from the consideration of the terms of the schedule that it ought to be so treated … ". These observations have the considerable force, in relation to payment of legacies, of a dictum of Walsh J concurred in by the other members of the Full Court (Owen and Clancy JJ). This dictum does not have the force which I would accord to a decision of the Court of Appeal or of the Full Court which decided in terms that the statutory order of application of assets has application not only in relation to liabilities but also in making assets, personal estate and also real estate, available for the payment of pecuniary legacies notwithstanding the absence of any expression in the will establishing that they are so available. I regard this subject as not entirely settled, and open for further consideration by the Court of Appeal, but not by a judge of this Court at first instance. 28 What I regard as difficult about Walsh J's dictum is that several different subjects are conflated into it. Assimilating real estate and personal estate for applicability for payment of debts and legacies is one subject. Walsh J's dictum attributed this assimilation to the legislation represented in New South Wales by s 46C and the Third Schedule. In my opinion this assimilation would be better attributed to the transformation in laws and in social attitudes about protecting real property from claims for debts and the absence of any true need to make special provisions charging real property with payment of debts: as these reforms took away special protection for real property more than 150 years ago it is unlikely that testators have such protection in view when they make their wills, and it is wrong to approach the interpretation of wills with any preconceptions about whether the subject of charging or not charging debts or legacies on real property was dealt with at all. Approaches to interpretation which were deeply entrenched in past times have become obsolete because they no longer have any relation to what testators generally are concerned to provide for. 29 Directing that legacies be paid out of property given by an express gift to someone other than legatees is a different subject. If any legal rule about that subject is attributed to s 46C and the Third Schedule, it can only be so attributed on the view that the references in class 1, class 2 and class 5 to a fund to meet pecuniary legacies carry the implication that the fund so retained is to be applied to meet pecuniary legacies, notwithstanding the context in s 46C and the Third Schedule which establishes that what the legislation deals with is payment of debts and liabilities. 30 A primary consideration supporting Walsh J's dictum is that notwithstanding that the general subject matter appears to be administration of assets to bring about payment of debts, the classes in Pt II of the Third Schedule actually make provision for setting aside a fund for payment of legacies. Provision is made in class 2 for retention out of property in a residuary gift of a fund sufficient to meet any pecuniary legacies not earlier provided for. But then in the class 5 the fund so retained is made available, literally for paying debts, but in the extended interpretation it is also made available for pecuniary legacies. The fund taken out of class 2 and placed in class 5 can only consist of assets which fall within class 2. Once the fund in class 5 is applied towards legacies the force of the reasoning which supported Walsh J's dictum is exhausted; the reasoning would not support imposing pecuniary legacies or anything else on assets in class 6. 31 To fall into the second class and thus be subject to retention of a fund sufficient to meet pecuniary legacies, an asset must pass (or perhaps fail) two tests.

(1) not specifically disposed of by will; and (2) but included (either by a specific or general description) in a residuary gift. 32 An asset which does not pass the first test, but is specifically disposed of by will cannot be an asset which passes the second test and is included either by a specific or general description in a residuary gift. 33 I gave three decisions in Matthews v Whittaker, the First Judgment on 15 March 1988, the Second Judgment on 29 August 1988 and a Third Judgment on 19 May 1989. In the third judgment at page 2 I said "However I am required, as it seems to me, by judicial opinion in this difficult area to take the view that assets in class 6 are available for the payment of legacies." I referred to a number of texts which relate to this difficult subject and I also said at 4 "I refer in my first judgment to authorities which in my opinion establish that for the purpose of payment of debts and of legacies this branch of the law is indifferent to the distinction between real property and personal property." I also said "It is clear enough that in order to displace the statutory order, a provision must be found in the will whereby the testator has established his own order of application of assets" for which I gave references. I then went on to give considerable attention to judicial opinion on the circumstances in which a provision made by the testator displaces the statutory order of assets. I do not think that is a problem in the present case. 34 I did not re-examine the conclusion that judicial opinion requires me to take the view that assets in class 6 are available for payment of legacies. The judicial opinion in view was a dictum of Walsh J in Fowler v Nield and earlier detailed consideration in In Re Foley (1953) 53 SR (NSW) 31 by Roper CJ in Eq at 34-36, which probably influenced the views of Walsh J, although he did not refer to it. The main focus of attention for Roper CJ in Eq and later for Walsh J was whether the legislation placed real estate on the same footing as personal estate to the payment of legacies. It is now beyond argument that it does. Whether the legislation makes assets in class 6 available for payment of legacies is a different question, and is not in my view affected by consideration of what is implied by references in classes 1, 2 and 5 to a fund sufficient to meet pecuniary legacies. That fund, and any reasoning based on the references to those classes, is exhausted when class 5 has been dealt with. 35 My further consideration, after an interval of more than 20 years, in the light of the strangely expressed cl 34 which locates a specific disposition in a residuary clause, has caused me to reconsider what I earlier said about the availability of assets in class 6 for payment of legacies. Neither In Re Foley nor Fowler v Nield decided to that effect. That view is not supported by the express terms of s 46C and the Third Schedule, and it is not supported by any implication based on the references in the Third Schedule to a fund for pecuniary legacies. There is no reason, in my opinion and in relation to the will now in question, why payment of legacies, or the specific disposition of the Concord house and contents should either have any priority over the other; each was fully intended by the testatrix, and not to give effect to the specific disposition of the house and contents would defeat that part of her intentions. Her intentions to give legacies should be met out of whatever assets are available, consistently with her specific intentions about the Concord house. I do not think that the intention should be attributed to her that if the legacies could not be paid out of other assets, the gift to the Campbells of the house at Concord should fail to take full effect. In the same way, if the deficiency of assets to pay legacies had been greater, it would not in my view accord with the testatrix' intention to pay part of the legacies out of the proceeds of the house at Harrington specifically given to Ms Armstrong. It is quite clear in my opinion that on the terms of the will including cl 34 the testatrix intended to make a specific gift to the house at Concord to the Campbells. 36 Greville v Browne (1859) 7 HLC 690, 11 ER 275 to which texts on the interpretation of wills often refer, is a case from a past age. The will was made in remarkably prolix terms in Ireland in 1825, long before Locke King's Act and at a time when legal rules differentiated between real and personal property on the incidence of debts, in the administration of estates and in many other circumstances. The testator gave legacies, and gave the rest and residue of his property, including the real estate, to his son, whom he named as an executor. The son after many years mortgaged the real estate and defaulted on the mortgages, raising the question of competition between those entitled to the legacies and those entitled to a mortgage over part of the residue. It must be that the mortgagees were affected with notice of the terms of the will. 37 The circumstances of the present day are very different, as testators and courts are no longer concerned, after Locke King's Act and judicial decisions affected by it, with whether or not debts charged on real property are to be paid out of the real property, or with related questions. In the Torrens system mortgagees can no longer be concerned with what happened in the administration of estates through which properties have passed. Speeches in the House of Lords were strongly affected by an earlier approach to that taken in Perrin v Morgan [1943] AC 399 and regarded provisions found in wills as subject to, in Lord Cranworth's expression at 702, 280, a settled canon of construction. Lord Cranworth said, and the House acted on this view (at 696-697) "For nearly a century and a half this rule has been laid down and acted upon, that if there is a general gift of legacies, and then the testator gives the rest and residue of his property, real and personal, the legacies are to come out of realty. It is considered that the whole is one mass; but part of that mass is represented by legacies, and that what is after given, is given minus what has been before given, and therefore given subject to the prior gift." 38 Greville v Browne is often referred to in text books for this proposition. Their Lordships' concern was with whether realty was charged with legacies. The proposition which continues to be important is the proposition, almost a truism, that where there is a gift of legacies and the gift of the rest and residue of property, what the residue is can only be ascertained after payment of the legacies has been provided for. This truism is subject to another truism, that the estate is to be administered in accordance with the testator's intention expressed in the will. 39 It must be rare to find that an asset is both specifically disposed of by will and also included by a specific description in a residuary gift; the idea strikes one strangely, and would probably have seemed the same way to the draughtsman of Schd Three Pt II. Clause 34 takes the altogether strange course, which I have not previously encountered and hope never to see again, of both specifically disposing of assets, and also including the same assets by a specific description in a residuary gift. 40 In my opinion it cannot be said, on the terms of the will and particularly of cl 34 that the house at Concord and its content are assets not specifically disposed of by the will. In the plainest way they are specifically disposed of by the will; no less so because the disposition is subject to liabilities. They do not fall into Class 1, Class 2 or Class 5. They fall into Class 6, in which there is no reference to a fund to pay pecuniary legacies. 41 Subjecting the disposition to liabilities does nothing to show an intention to subject it to pecuniary legacies; subjection to pecuniary legacies can arise only through the workings of the statutory provision. The convoluted expression in cl 34 "including but without limiting the generality of the foregoing" upon which the defendant's counsel much relied, in my opinion does nothing to indicate any such intention either. These expressions refer to the testatrix' intention about disposition of assets, and have no reference to any intention with respect to the operation or lack of operation of a statutory order of application of assets. In the absence of expression of intention specifically dealing with non-application of the statutory order, the statutory order does operate; but its operation cannot be higher than its terms, and it only imposes liability for legacies by the combined operation of Class 2 and Class 5; if an asset is in Class 6, the extended reasoning adopted by Walsh J does not touch it. 42 In my opinion the Concord house and its contents fall into Class 6 - assets specifically disposed of by a will. Accordingly they are not subjected by the operation of the statutory provisions to any liability to pay legacies. As they are not so subjected by any expression of the testatrix' intention, they pass in my opinion to Mr and Mrs Campbell undiminished by any claim relating to payment of pecuniary legacies. 43 The terms of cl 34 of the will do not follow any familiar pattern, or any pattern ever encountered before. They do not deal with the order of application of assets to meet liabilities, or to meet legacies, but in my opinion they show that the testatrix intended that the house at Concord should pass to the Campbells, with the qualification that the gift was subject to liabilities, but without any other qualification. It would in my opinion be contrary to the testatrix's intention as expressed in the will to conclude that she gave any priority either to the legacies or to the gift of that house. Both should take effect according as assets are available. 44 ORDERS:

(1) Declare that upon the true construction of the will of Evelyn Elizabeth Hayward dated 29 July 2004 and in the events that have happened:

(a) Clause 34 of the will is to be construed as creating a specific devise to Muriel Thelma Campbell and Joseph Owen Campbell of the property at 25 Wallace Street Concord, and as creating a specific bequest to Muriel Thelma Campbell and Joseph Owen Campbell of all furniture, furnishings, crockery, cutlery, glassware, plate, plated goods and all other items of a household or domestic nature, together with all jewellery and porcelain ornaments, the property of the deceased.

(b) The property the subject of that devise and gift is available for and subject to the payment thereout of all the testatrix' just debts, funeral and testamentary expenses and all probate estate and other duties payable in respect of her estate or as a consequence of her death.

(2) I order that the costs and expenses of the plaintiff of and incidental to the proceedings be paid or retained by her out of the estate of the testatrix.

(3) I order that the costs of the fourth to tenth defendants of the proceedings be paid by the executrix out of the estate of the testatrix. **********

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CITATION : ARMSTRONG V THE CHILDRENS HOSPITAL AT WESTMEAD & ORS [2008] NSWSC 1315

CASES CITED : Fowler & Anor v Nield [1961] SR (NSW) 152Greville v Browne (1859) 7 HLC 690, 11 ER 275Hatzantonis & Anor v Lawrence (2003) NSWSC 914In Re Foley (1953) 53 SR (NSW) 31Matthews v Whittaker (unreported, 15 March 1988) BC 880 2127, (unreported 19 May 1989) BC 890 2152Perrin v Morgan [1943] AC 399

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