TRUSTEES - Application for judicial advice - Interpretation of will - Principles to be applied - Power of appointment of property under Wills Act 1968 (ACT) s 14A - Whether partial intestacy

Administration and Probate Act 1929 (ACT), s 49C, sch 6, pt 6.2

Trustee Act 1925 (ACT), s 63

Wills Act 1968 (ACT), ss 12B, 14A

Arnott v Kiss [2014] NSWSC 1385

Coorey v George (unreported, Supreme Court of New South Wales, Powell J, 27 February 1986)

Fell v Fell [1922] HCA 55; (1922) 31 CLR 268

Gregory v Hudson (1998) 45 NSWLR 300

Horan v James [1982] 2 NSWLR 376

Jenkins v Stewart [1906] HCA 35; (1906) 3 CLR 799

Lutheran Church of Australia South Australia District Inc v Farmers' Cooperative Executors and Trustees Ltd [1970] HCA 12; (1970) 121 CLR 628

Re Estate Late Chow Cho-Poon [2013] NSWSC 844

Re Gulbenkian's Settlement Trusts [1968] UKHL 5; [1968] 3 All ER 785

Perrin v Morgan [1943] AC 399

Tatham v Huxtable [1950] HCA 56; (1950) 81 CLR 639

Australian Capital Territory Legislative Assembly Hansard, 19 September 1991

Certoma, G.L, The Law of Succession in New South Wales (Thomson Reuters, 4th ed, 2010)

Dal Pont, G.E, Equity and Trusts in Australia (Thomson Reuters, 6th ed, 2015)

Helmore, B.A, The Law of Real Property in New South Wales (Law Book Co, 2nd ed, 1966)

Heydon, J.D and Leeming, M.J, Jacobs' Law of Trusts in Australia (LexisNexis Butterworths, 7th ed, 2006)

Rowland, C.J, Report of the Law Reform Committee of the Law Society of the Australian Capital Territory on the Wills Ordinance 1968 (21 April 1987)

1. John Duncan Love (the Deceased) died on 19 June 2016, aged 73 years. He was divorced at the time of his death, left no partner and had no children. Probate was granted on 1 September 2016 and at that point the gross value of the deceased person's estate in the ACT was $5,139,015.12. The Deceased also owned real property in New South Wales.

2. The applicant, Linda Thorncraft, is the executor of the estate of the deceased's last will dated 14 February 2016 (the 2016 will).

3. The executor's application dated 29 September 2016 describes its scope as follows:

An application pursuant to Rule 6006 of the Court Procedures Rules and Section 63 of the Trustee Act 1925 for the following questions to be determined:

"Whether on the proper construction of the Will dated 14 February 2016 of John Duncan Love, deceased and in the events that have occurred:

1. clause 22 of the Will confers on the executor a valid and effectual power, exercisable at her discretion, to vary monetary amounts stated in the Will;
2. if the answer to question 2 [sic] is "yes", then whether such power:

(a) may be exercised in respect of the monetary amounts stated in clauses 4 to 21;

(b) in the alternative to question 2(a), may be exercised only in respect of the monetary amounts stated in clauses 4 to 20;

(c) may be exercised to vary any one or more of the stated monetary amounts; in the alternative to question 2(c), may only be exercised to vary all of the stated monetary amounts, in a pro rata manner;

3. if the answer to question 1 is "no", whether there is a partial intestacy."

4. The application was somewhat ambivalent about its character. Although the terms of the application set out above refer to it being an application under s 63 of the Trustee Act 1925 (ACT) (Trustee Act), namely an application for judicial advice, elsewhere on the application reference is made to the application being a construction suit. The executor's written submissions also referred to it as such. However, no defendant was joined as a party to the proceedings and hence, if a construction suit, no other party would be bound by any declaration made. I have proceeded on the basis that the application was for judicial advice.

Section 63

5. Section 63 of the Trustee Act provides:

63 Advice

(1) A trustee may apply to the Supreme Court for an opinion, advice or direction on any question respecting the management or administration of the trust property, or respecting the interpretation of the trust instrument.

(2) If the trustee acts in accordance with the opinion, advice or direction, he or she shall be deemed, so far as regards his or her own responsibility, to have discharged his or her duty as trustee in the subject matter of the application, provided that he or she has not been guilty of any fraud or wilful concealment or misrepresentation in obtaining the opinion, advice or direction.

(3) Unless otherwise prescribed by rules of court, the application may be made by summons or appointment upon a written statement signed by the trustee or his or her lawyer.

(4) Unless the Supreme Court otherwise directs, it shall not be necessary to serve notice of the application on any person, or to adduce evidence by affidavit or otherwise in support of the application.

(5) Where the question is who are the beneficiaries or what are their rights as between themselves, the trustee before conveying or distributing any property in accordance with the opinion, advice or direction shall, unless the Supreme Court otherwise directs, give notice to any person whose rights as beneficiary may be prejudiced by the conveyance or distribution.

(6) The notice shall state shortly the opinion, advice or direction, and the intention of the trustee to convey or distribute in accordance with it.

(7) Any person who claims that his or her rights as beneficiary will be prejudiced by the conveyance or distribution may within such time as may be prescribed by rules of court, or as may be fixed by the Supreme Court, apply to the court for such order or directions as the circumstances may require, and during such time and while the application is pending, the trustee shall abstain from making the conveyance or distribution.

(8) Subject to subsection (7), anyone on whom notice of any application under this section is served or to whom notice is given in accordance with subsection (5) shall be bound by the opinion, advice or direction of the Supreme Court, or by the order and directions of the court, as the case may be, as if the opinion, advice or direction, or the order and directions, had been given or made upon the hearing of an application to which such person was a party.

6. There are several features of s 63 which arise from the terms of the section:

(a) Advice about the interpretation of the trust instrument is within scope of s 63. A trust instrument includes a will because a trust includes the duties of a legal representative of a dead person (Trustee Act, s 4) and a "trust instrument" means the instrument creating the trust (Trustee Act, Dictionary).

(b) The advice may be given without affected parties being given notice of the application: s 63(4).

(c) Where the advice is as to who are the beneficiaries then prior to distributing property it is necessary for the trustee to give notice to a person whose rights as a beneficiary may be prejudiced by the conveyance or distribution: s 63(5).

(d) Where that occurs then any person who claims that his or her rights as beneficiary will be prejudiced by the conveyance or distribution has the opportunity to apply to the court for resolution of the issue that arises: s 63(7).

(e) Unless such an application is made then anyone who was either served with notice of the application under s 63 or, although not served with such notice, given notice of the conveyance or distribution is bounded by the opinion of the advice or direction of the Supreme Court: s 63(8).

7. The nature of judicial advice proceedings is explained in detail by Lindsay J in Re Estate Late Chow Cho-Poon [2013] NSWSC 844 at [29]- [49] (Chow Cho-Poon). The distinction between such proceedings and a construction suit has consequences for the manner in which matters are required to be proved and the appropriateness of the provision to the Court of an advice from counsel. While a construction suit will involve the joinder of parties who have an interest in opposing the relief sought, in judicial advice proceedings the manner in which other parties are given an opportunity to be heard is set out in ss 63(4)-(8). I adopt what was said by Lindsay J in Chow Cho-Poon at [48]-[49] as to the utility of the provision of counsel's opinion when advice is sought. No such opinion was provided in the present case.

8. The Deceased was a retired professor at the Australian National University (the ANU). It is apparent that he prepared the 2016 will himself, without the intervention of lawyers. It was witnessed by two friends, each of whom receives a $50,000 gift under the terms of the will.

9. The estate will have a gross value of approximately $5,500,000.

10. The Deceased was an only child. He married Susan Mary Kirkwood in the United Kingdom in June 1969. They were subsequently divorced in Canberra in October 1994 and had no children. The Deceased left no spouse. His parents are deceased, as are his grandparents. The Deceased may be survived by two first cousins and up to twelve second cousins.

11. The Deceased had, prior to his death, already been funding a series of scholarships at the ANU.

1. I REVOKE all former Wills.

2. I DECLARE that I am domiciled in the Australian Capital Territory.

3. I APPOINT LINDA (known as Lin) THORNCRAFT of [address] as the sole Executor and Trustee of this my last Will.

[Clauses 4-20 contained gifts of specified sums to identified persons or entities. Some of the clauses identified the purpose for which the gift was made, others did not.]

21. I ALLOCATE to the Executor the sum of $25,000 for cremation, probate and other costs associates with the execution of my Will and death.

22. I GIVE my Executor the authority to vary money amounts as deemed appropriate in accordance with this my last Will.

14. The executor submitted that cl 22 is ambiguous in several respects:

(a) whether the reference to "money amounts" is a reference to the amounts of money stated in the preceding clauses 4 to 21;

(b) the meaning of "as deemed appropriate"; and

(c) the constraints, if any, imposed by the words "in accordance with this my last Will".

15. The executor submitted that the proper construction of cl 22 should be as follows:

(a) The overall scheme of the Will is that the deceased made a series of monetary gifts with the allocation of an amount of $25,000.00 to meet testamentary and administration expenses.

(b) It appears unlikely that the deceased intended an intestacy. In this regard, it is relevant that in preparing the Will, the deceased appears to have had recourse to his previous Will dated 15 March 1989 ("the 1989 Will"). There are clear similarities in the wording, and in the formatting of the document. The 1989 Will contains a gift of residue, but the Deceased has not included such a clause in his last Will. It is also relevant that the value of the Deceased's estate is considerably in excess of the total of the monetary amounts stated in clauses 4 to 21.

(a) In this context, it appears likely that by clause 22, the Deceased intended to confer a power for the Executor to vary the monetary amounts stated in clauses 4 to 21, to exhaust the residue of the estate.

(b) The words "the authority" and "as deemed appropriate" clearly denote a power, rather than a duty, and that a measure of discretion is vested in the Executor. The terms of the Will, viewed as a whole, do not indicate any other person whom the Deceased might have intended to have any role in determining what variation of money amounts might be "appropriate" for the purposes of clause 22.

(c) The Court should strive, in construing the clause, to attach some meaning to the words "in accordance with this my last Will", so that those words are not redundant. The obvious possible constructions are that any variation, pursuant to the clause 22, of the amounts in the preceding clauses must be:

• (i) Pro-rata (so that each of the amounts stated in clauses 4 to 21 must be varied in proportion to the amounts stated in those clauses); or
• (ii) In accordance with the Will, in the sense that only the amounts stated in clauses 4 to 21 may be varied (so that the overall scheme of the Will must be respected, in that no new beneficiaries may be added).

It is submitted that the latter construction is more likely for two reasons. First, it sits more comfortably with the discretion implied by the words "the authority" and "as deemed appropriate". Secondly, the amount of $25,000 stated in clause 21 could only, having regard to the content of that clause, be an estimate, which suggests that a pro-rata variation of all of the monetary amounts in clauses 4 to 21 was not intended.

[Emphasis in original]

16. The executor submitted that, adopting the proposed construction, cl 22 would be effective as a matter of law. The effect of this construction would be that cl 22 would, in substance, be a special power of appointment and that this would be valid under s 14A of the Wills Act 1968 (ACT).

17. All beneficiaries named in the 2016 will have been notified and they have all responded that they have been served and two of those beneficiaries, Susan Dart and Sylvia Forsmann, have made comments that they wish to be put before the Court and I have taken these comments into account.

18. While the beneficiaries have been informed that the value of the estate exceeds the amount of the specific gifts in the will, none of them have been informed of the value of the estate in excess of the bequests of $3,900,000.

19. In the event that only the specific gifts in the will are effective there would be a partial intestacy of the residue of the estate. Schedule 6 Part 6.2 of the Administration and Probate Act 1929 (ACT) identifies the persons who would take on a partial intestacy. Given that the deceased left no spouse, partner, children, siblings, parents or grandparents, the persons who would take on a partial intestacy would be the next of kin who are defined in s 49C of the Administration and Probate Act. The executor has not been able to identify and locate conclusively all of the beneficiaries. The possible identity of the deceased's next of kin is addressed by the affidavit of Keith Arthur Bradley sworn 27 October 2016 which discloses the extent of the executor's investigations as to the potential members of the class who would take on a partial intestacy.

20. Section 63 permits advice to be given in the absence of, and without notice to, persons who may be affected by that advice. The position of those persons is protected by ss 63(5)-(8). It will generally be appropriate to give notice to the persons affected by such advice so as to give those persons an opportunity to be heard, bind them pursuant to s 63(8) and provide certainty in the administration of the estate. In a case involving "the interpretation of a trust instrument" where there is clearly a dispute, it may be appropriate to join the relevant parties to the proceedings so that they also take on the character of a construction suit: for example Arnott v Kiss [2014] NSWSC 1385 at [1]- [8]. How to approach the issue of notice and whether or not judicial advice should be given without notice to interested parties may involve issues of judgment on the part of the Court: Chow Cho-Poon at [200].

21. In the present case I consider that it is appropriate to give advice. However, having regard to the fact that the advice sought includes advice as to whether or not there is a partial intestacy, I consider that the advice will necessarily involve advice as to "who are the beneficiaries". Hence those persons who would be beneficiaries if there was a partial intestacy, but have not been given notice of the proceedings, will be protected by the operation of ss 63(5)-(7).

22. The 'fundamental rule' of construction of wills was stated by Viscount Simon LC in Perrin v Morgan [1943] AC 399 at 406:

... the fundamental rule in construing the language of a will is to put upon the words used the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made his will, but what the written words he uses mean in the particular case - what are the "expressed intentions" of the testator.

23. In ascertaining the expressed intention of the testator, the will is to be read as a whole and construed according to the plain and ordinary meaning of the words: Fell v Fell [1922] HCA 55; (1922) 31 CLR 268 at 273-274 (Fell).

24. If the usual meaning of those words is clear, they will be given that construction. If not, the Court may have regard to extrinsic evidence. The relevant statutory provision in the ACT is s 12B of the Wills Act, which permits regard to be had to extrinsic material if the will or any part of it is ambiguous or uncertain on the face of the will or in the light of surrounding circumstances.

25. Regard should also be had to the overall dispositive scheme of the will. As Powell J said in Coorey v George (unreported, Supreme Court of New South Wales, 27 February 1986) at 14, in a passage approved by Bryson J in Perpetual Trustee Co Ltd v Wright (1987) 9 NSWLR 18 at 33, in construing a will:

... one's task is, first, if it be possible, to ascertain, what was the basic scheme which the deceased had conceived for dealing with his estate, and, then, so to construe the will as, if it be possible, to give effect to the scheme so revealed.

26. The presumption against intestacy requires the Court to prefer a construction which is reasonably open and will avoid an intestacy: Fell at 275-276 and 279; Jenkins v Stewart [1906] HCA 35; (1906) 3 CLR 799 at 804.

27. The effect of the 2016 will is that the executor is a trustee of the whole of the Deceased's estate. The trustee has both "trust powers" and "mere powers": see Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 6th ed, 2015) at [16.190]. That is the executor has those powers of a trustee which must be exercised in relation to the trust property, but also a discretionary power to appoint so much of the property as in excess of the gifts identified to the class of persons identified by cl 22. A power of appointment used in this way means a power to dispose of property: Heydon and Leeming, Jacobs' Law of Trusts in Australia (LexisNexis Butterworths, 7th ed, 2006) at [246]; Helmore, The Law of Real Property in New South Wales (Law Book Co, 2nd ed, 1966) at 244 - 246.

28. In other words, so far as there are gifts of identified amounts in cls 4 to 20 the gifts are trust powers because the trustee is obliged to fulfil the gift. Insofar as there may be an additional power provided by cl 22 to adjust the amount of those gifts, the power is a mere power because there is no duty to exercise that power. While there is no default provision in the terms of the will dealing with the situation in which the power to vary the amounts of the gifts is not exercised in a manner that exhausts the residue of the estate, the power is nevertheless still appropriately characterised as a mere power because:

(a) it is not possible to read the power as one which the trustee is obliged to exercise as opposed to a discretionary power having regard to the words used ("authority to vary money amounts as deemed appropriate"); and

(b) a default beneficiary is provided by the law relating to intestacy.

29. Powers of appointment may be characterised as general, special or intermediate (also referred to as hybrid). There is extensive literature concerning the rule that a testator cannot delegate the power to make a will. There was a discontinuity between the powers that could be provided in a settlement inter vivos on the one hand and by will on the other. The remarks of Fullagar J in Tatham v Huxtable [1950] HCA 56; (1950) 81 CLR 639 fuelled the controversy. While there was general acceptance of the doctrine in Australia, there was widespread disagreement as to its rationale and scope. The complexities of the law were illustrated by the equal division of the High Court in Lutheran Church of Australia South Australia District Inc v Farmers' Cooperative Executors and Trustees Ltd [1970] HCA 12; (1970) 121 CLR 628. A disposition was invalidated in Horan v James [1982] 2 NSWLR 376. The controversy created by the scope of the rule remained in Gregory v Hudson (1998) 45 NSWLR 300. The position was addressed in the Territory by the insertion in 1991 of s 14A of the Wills Act which provided that a power to appoint property would not be void if the power could be given by an instrument inter vivos. This was modelled on a Queensland provision and was enacted because there was no good reason to maintain the distinctions which the authorities entailed: Australian Capital Territory Legislative Assembly Hansard, 19 September 1991, 3523; Rowland, Report of the Law Reform Committee of the Law Society of the Australian Capital Territory on the Wills Ordinance 1968 (21 April 1987) at 63. A similar reform was only made in NSW with effect from 1 March 2008: see Certoma, The Law of Succession in New South Wales (Thomson Reuters, 4th ed, 2010) at [4.270].

(a) At the time of the making of his will and at the time of his death the Deceased had no spouse or children.

(b) The Deceased had made a will dated 15 March 1989 (the 1989 will) which named his cousin as the executor, however, his cousin died in 2012.

(c) The 1989 will was prepared by a solicitor. It had the same general structure as the 2016 will in that it provided for a series of gifts to identified persons or institutions. However, it contained a clause dealing with the residue of the estate which was given to the Deceased's then wife Susan Mary Love.

(d) The Deceased was divorced from Susan Mary Love on 15 October 1994.

(e) In November 2014 the Deceased pledged a gift of $1.05 million over five years to the ANU to support scholarships known as the "Love Scholarships". That was done by deed dated 19 November 2014.

(f) The 2016 will is dated 14 February 2016.

(g) At about the time of making the 2016 will he specifically discussed with Ms Thorncraft, the executor named under the will, what was to be done with any money that was left over after the specific gifts in his will. The statements included:

I know that you will know exactly to whom and how I would like any extra to go. I have certain friends that mean a lot to me and you know who they are, so do as you feel I would like, to assist them even further.

...

I have been very generous to the ANU, and feel they have received the largest amount of my estate and probably enough. But I know how you feel about assisting others less fortunate, exactly the same way as I do, so if you see a need to add to this, please do so if there is sufficient, but I doubt that there would be as I have checked all my calculations.

31. Having regard to the terms of the will I consider that it is ambiguous or uncertain on its face and hence, pursuant to s 12B(b) of the Wills Act, it is open to consider "evidence, including evidence of the testator's dispositive intention". The ambiguities are those identified by the executor at [14] above.

32. Having regard to the terms of the will and the evidence as to the Deceased's intention (in particular at [30](g) above) it is clear that the Deceased did not intend that there should be a partial intestacy. Rather, he intended that any estate beyond that which he had specifically given by the gifts in cls 4 to 20 and which was not required for the administration of his estate (cl 21) be dealt with by the mechanism contemplated by cl 22. That scheme is consistent with the substitution of the residue clause in the 1989 will with the cl 22 mechanism in the 2016 will.

33. The next issue is how cl 22 operates. I consider that it gives a discretionary power to the executor to vary the amounts of the gifts in the will. Having regard to the words of cl 22 that is a power which is:

(a) confined to the beneficiaries identified in the 2016 will; and

(b) may be exercised in relation to some but not all of the gifts.

34. The first of those conclusions derives from the reference to "vary" and the words "in accordance with this my last Will". Those words are inconsistent with there being a general power to appoint property to persons not already beneficiaries under the will.

35. The second of those conclusions derives from the absence of any constraint in the language of cl 22 which would confine it to a pro rata variation of the amounts. The expression "in accordance with this my last Will" does not compel such a conclusion because it is given some meaning and effect by its role in reaching the first conclusion set out above. The second conclusion is also reinforced by the extrinsic evidence of the Deceased's dispositive intention set out in the quote at [30](g) above. That extrinsic evidence is consistent with a power to vary the gift to some but not all of the beneficiaries ("you will know exactly to whom and how I would like any extra to go").

36. So construed the clause is a valid one, as the power is one which identifies with certainty the persons who may benefit from the power and which could have been given to Ms Thorncraft by the Deceased during his life: Wills Act, s 14A; Re Gulbenkian's Settlement Trusts [1968] UKHL 5; [1968] 3 All ER 785.

37. The same approach should also be taken to cl 21. It is consistent with the structure of the 2016 will and the terms of cl 22 that the amount allocated to the execution of the will also be able to be varied at the discretion of the executor.

38. The advice given may be summarised by answering the questions identified by the executor's application as follows:

1. Whether on the proper construction of the will cl 22 of the will confers on the executor a valid and effectual power, exercisable at her discretion, to vary monetary amounts stated in the will;

1. If the answer to question 1 is "yes", then whether such power:

(a) may be exercised in respect of the monetary amounts stated in cls 4 to 21;

(b) in the alternative to question 2(a), may be exercised only in respect of the monetary amounts stated in cls 4 to 20;

(c) may be exercised to vary any one or more of the stated monetary amounts;

(d) in the alternative to question 2(c), may only be exercised to vary all of the stated monetary amounts, in a pro rata manner;

1. If the answer to question 1 is "no", whether there is a partial intestacy.

In the light of the answer to question 1 there is no partial intestacy.

I certify that the preceding thirty-eight [38] numbered paragraphs are a true copy of the Reasons for Judgment of his Honour Associate Justice Mossop.