Arnott v Leong

Supreme Court of NSW|2009-03-18|Before: Hamilton J, Powell J

DECISION : Share disclaimed by one residuary beneficiary under will passed to the other residuary beneficiary, not as on intestacy.

CATCHWORDS : SUCCESSION [178] - Wills, probate and administration - Construction and effect of testamentary dispositions - Generally - Gifts to a class - What is a class - Class gift principle applies to a group whose members do not have sufficient connection to constitute a class if it is to be inferred that testator intended gift to be tantamount to a class gift.

Allgood v Blake (1873) LR 8 Ex 160 Bain v Lescher (1840) 11 Sim 397; 59 ER 926 Coorey v George NSWSC Powell J 22 February 1986 unreported Fell v Fell (1922) 31 CLR 268 Hamersley v Newton (2005) 30 WAR 568 Hatzantonis v Lawrence [2003] NSWSC 914 Hyde v Holland [2003] NSWSC 733 In re Coleman and Jarrom (1876) 4 Ch D 165 CASES CITED : In re Crocombe deceased [1949] SASR 302 In re Peacock deceased. Midland Bank Executor and Trustee Co Ltd v Peacock [1957] Ch 310 In re Selby deceased; Cole v Cole [1952] VLR 273 In re Stratton's Disclaimer. Stratton v Inland Revenue Commissioners [1958] Ch 42 In re Woods [1931] 2 Ch 138 Kingsbury v Walter [1901] AC 187 Marks v Pope [2001] NSWSC 105 Peoples v Simpson [2005] NSWSC 355 Perpetual Trustee Co Ltd v Wright Re Will of the Late James Paul Gee Cox (Junior) Deceased (1987) 9 NSWLR 18

TEXTS CITED : 1 Williams on Wills (7th ed, 1995) 526 G L Certoma, The Law of Succession in New South Wales (3rd ed, 1997) 178

Peter Arnott (P) PARTIES : Stephen Leong (D1) John Evans (D2) Penelope Evans (D3)

D G Charles (P) COUNSEL : P Hallen SC (D1) P H Blackburn-Hart SC (D2&3)

Arnotts Lawyers (P) SOLICITORS : Clayton Utz (D1) Teece Hodgson & Ward (D2&3)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

4344/08 PETER ARNOTT v STEPHEN LEONG & ORS JUDGMENT 1 HIS HONOUR: This case concerns the construction of a residuary gift in a will. The question is whether, one of two residuary beneficiaries having disclaimed her interest, her half share in residue passes to the other residuary beneficiary or whether there is an intestacy as to the disclaimed half share. FACTS 2 The facts of the matter are not in dispute. 3 Nicholas William Evans ("the deceased") died on a date prior to 22 October 2007, aged 44 years. The deceased left a will made on 3 September 2007, the relevant terms of which are as follows: "2 I APPOINT PETER ARNOTT as my executor and trustee who is referred to in this Will as "my executor".

3 I GIVE all my estate to my executor UPON TRUST to pay the same as follows:- (a) I GIVE all my Shares (both Private and Public) and funds held in Loan Account in the name of Jama Pty Ltd. To my sister, ANNEKA KATE EVANS; (b) I DIRECT that any residential property that I own at the date of my death be sold and my estate be liquidated and I GIVE the residue of my Estate to SUE AUSTIN AND STEPHEN LEONG and if more than one in equal shares as tenants in common.

4 I REQUEST that SUE AUSTIN and STEPHEN LEONG make a generous donation of funds to RIGDZIN TRUST OF AMNYI TRULCHUNG RINPOCHE NEW ZEALAND from my gift to them." 4 Probate of the will was granted in common form to the plaintiff, Peter Arnott ("the executor"), on 25 January 2008. The executor is in the process of collecting the assets. No distribution of the estate has been made to any beneficiary. 5 The residuary beneficiary, Sue Austin, is a professional clinician who, between November 2002 and October 2007, saw the deceased regularly for therapy sessions, for which she was paid by the deceased at an hourly rate. Her relationship with the deceased was purely professional. The residuary beneficiary, Stephen Leong ("the first defendant"), and the deceased were friends for many years prior to the deceased's death. The second and third defendants are the parents of the deceased, who are entitled to any share of the deceased's estate in respect of which there is an intestacy. 6 Sue Austin disclaimed the interest that she was given under the deceased's will. This was because she deemed it inappropriate for her to accept a gift from a person with whom she was in a professional relationship. All the parties concede that Sue Austin's disclaimer was effective and that she has no interest in the deceased's estate. The disclaimer, whenever made, operates back to the deceased's death: see In re Stratton's Disclaimer. Stratton v Inland Revenue Commissioners [1958] Ch 42. The executor takes the view that there is doubt as to who is entitled to Sue Austin's disclaimed half share of the residuary estate. The candidates for the entitlement are, on the one hand, the first defendant and, on the other, the second and third defendants. 7 The first defendant has contended by Mr Hallen of Senior Counsel that there is an intention evinced by the will that he should take Sue Austin's disclaimed share. The second and third defendants have argued by Mr Blackburn-Hart of Senior Counsel that there is an intestacy as to the disclaimed share, so that it passes to them. Mr David Charles, of counsel for the executor, has made useful written submissions, but has not taken sides in the contest. THE ISSUES 8 There are three paths that have been suggested that could lead to the will being construed so that the disclaimed gift goes to the other residuary beneficiary.

(1) Mr Hallen contends that the construction of the terms of the will itself, without adversion to other principles, will lead to the conclusion that it was the testator's intention that, if one of the residual beneficiaries did not in fact take the gift intended for him or her, the balance of the residue should pass to the other.

(2) If he does not succeed by this avenue, Mr Hallen contends that the residuary gift is to a class or group, so that the testator should be taken to have intended that, upon the failure of the gift to one member of the class or group, that member's share should pass to the other member of the class or group.

(3) The third avenue, suggested by Mr Blackburn-Hart, arises if the gift in clause 3(b) should be regarded as subject to a contingency constituted by the words "if more than one". Where the intention of the testator appears to connote some future contingency attaching to the gift, the gift is construed as dependent upon that contingency being fulfilled. Arguably, the expression "and if more than one in equal shares as tenants in common" might imply a contingency that if A predeceases the testator, the contingency of both surviving him not having been fulfilled, B takes the whole gift. Mr Hallen does not in reality seek to go down this pathway. CONSTRUCTION OF WILLS: GENERAL PRINCIPLES 9 The general approach a Court should take in construing a will was well stated by Blackburn J in Allgood v Blake (1873) LR 8 Ex 160 at 162 - 164. His Lordship said: "A general rule is that, in construing a Will, the Court is entitled to put itself in the position of the testator, and to consider all material facts and circumstances known to the testator with reference to which he is to be taken to have used the words in the Will, and then to decide what is the intention evidenced by the words used with reference to those facts and circumstances which were (or ought to have been) in the mind of the testator when he used those words …

No doubt in many cases the testator has for the moment forgotten or overlooked material facts and circumstances which he well knew. And the consequence sometimes is that he uses words which express an intention which he would not have wished to express, and would have altered if he had been reminded of the facts and circumstances. But the Court is to construe the Will as made by the testator, not to make a Will for him; and therefore it is bound to execute his expressed intention, even if there is great reason to believe that he has, by blunder, expressed what he did not mean …

We apprehend that no precise line can be drawn, but that the Court must, in each case, apply the admitted rules to the case in hand; not deviating from the literal sense of the words without sufficient reason, or more than is justified; yet not adhering slavishly to them, when to do so would obviously defeat the intention which may be collected from the whole Will." 10 There are four general canons or principles of the construction of wills that are relevant to the case.

(1) The first canon is that the Court's first task is, if possible, to ascertain the testator's basic scheme for dealing with his estate and, if possible, to construe the will to give effect to that scheme. In the words of Powell J in Coorey v George NSWSC 22 February 1986 unreported: "... it seems to me that 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." This passage was repeated by Bryson J in Perpetual Trustee Co Ltd v Wright Re Will of the Late James Paul Gee Cox (Junior) Deceased (1987) 9 NSWLR 18 at 33 and again in Hatzantonis v Lawrence [2003] NSWSC 914 at [10] and by Gzell J in Peoples v Simpson [2005] NSWSC 355 at [6].

(2) The second is that the will should be so construed as to give effect to the intention of the deceased, such intention being gathered from the language of the will, read in the light of the circumstances in which the will was made. The overriding consideration is the language used by the deceased and the Court can neither ignore the plain meaning of words nor unnecessarily introduce words to give effect to an intention that is not expressed: In re Crocombe deceased [1949] SASR 302 per Mayo at 305.

(3) The third principle is that a will must if possible be construed so that effect is given to every word used by the testator. As stated in 1 Williams on Wills (7 th ed, 1995) at 526: "A will must be so construed that effect is given to every word. The court has no right to disregard a word provided some meaning can be given to it, and that meaning is not contrary to some intention plainly expressed in other parts of the will. The court does not as a rule import to the testator that he uses additional words without some additional purpose or without any purpose at all." (footnotes omitted)

(4) The fourth relevant principle is that there is a presumption against intestacy, namely, that the will should, if possible, on a fair and reasonable construction, be construed so as to lead to a testacy rather than an intestacy or partial intestacy. In Fell v Fell (1922) 31 CLR 268 at 275 - 276 Isaacs J said: " 'The mind never inclines towards intestacy; it is a dernier ressort in the construction of wills' (Lord Shaw in Lightfoot v Mayberry (1914) AC, 782, at p 802). 'In ascertaining the intention, I ought to a certain extent - we all know what the expression means - to lean against an intestacy, and not to presume that the testator meant to die intestate if, on a fair construction, there is reason for saying the contrary ' (Buckley LJ in Kirby-Smith v Parnell (1903) 1 Ch 483, at p 489." See also Hamersley v Newton (2005) 30 WAR 568 at 583 per Heenan J. In other words, where there is only a slight reason to favour one ambiguous construction over another, the Court will do so if that construction avoids intestacy, on the basis that it is closer to the deceased's intention than intestacy: Hyde v Holland [2003] NSWSC 733 per Austin J at [27]. It has been said that the presumption against intestacy "is not a strong presumption": Marks v Pope [2001] NSWSC 105 at [17] per Young J (as his Honour then was). CLASS GIFTS 11 In Kingsbury v Walter [1901] AC 187 at 191, Lord McNaghten said: "In my opinion the principle is clear enough. When there is a gift to a number of persons who are united or connected by some common tie, and you can see that the testator was looking to the body as a whole rather than to the members constituting the body as individuals, and so you can see that he intended that if one or more of that body died in his lifetime, the survivors should take the gift between them, there is nothing to prevent your giving effect to the wishes of the testator.

I think this is a gift to a class … I think it is pretty plain that the testator made one class of all his nephews and nieces, and intended that if any of them died during his lifetime the survivors should take." 12 In In re Coleman and Jarrom (1876) 4 Ch D 165 at 173 Jessel MR said: "I think that the true rule is that those members of the class who are at the testator's death capable of taking take, and that those who become incapable of taking - whether by dying in the testator's lifetime, or by attesting the will, or by some other operation of law - do not take." 13 In G L Certoma, The Law of Succession in New South Wales (3rd ed, 1997), the learned author summarised the operation and purpose of the rule as to class gifts as follows at 178: "Examples of class gifts are 'to my grandchildren', 'to my grandchildren A, B and C and such of my grandchildren hereafter born', 'to A, B, C and D if living'. The essence of a class gift is that if a potential member of the class cannot take, the shares of the remaining members are increased and so there is no question of the gift becoming partly undisposed of. The potential member may not be able to take for any one of a number of reasons such as death before the testator or before attaining a vested interest, express exception or revocation by the testator, attestation of the will, or the felonious killing of the testator. A true class gift must be distinguished from a series of independent gifts to the members of a class, the difference being that in the latter case the gift of each member of the class is quantified from the beginning as if each person had been given a separate gift and if any such gift fails it does not augment the shares of the remaining members of the class but passes as part of the residue or on intestacy as the case may be, for example, a gift equally to 'my nine grandchildren' or 'to the three children of A'. Gifts to several persons by name, number or reference are not usually true class gifts." (footnotes omitted)

Illustrations of the principle stated in the last sentence are to be found in Bain v Lescher (1840) 11 Sim 397; 59 ER 926 (three named children of the testator) and In re Selby deceased; Cole v Cole [1952] VLR 273 (four named nephews). This result has been reversed by s 42 of the Succession Act 2006 in respect of estates of persons dying after 1 March 2008. 14 In Kingsbury Lord McNaughten warned ibid: "I cannot help thinking that judges have at times concerned themselves more about the definition of 'a class,' about what is or what is not a 'class,' than about the language of the testator actually before them." 15 In any event, the principle enunciated in relation to a class can apply where there is a gift to a "group" of persons who do not strictly constitute a class. In In re Peacock deceased. Midland Bank Executor and Trustee Co Ltd v Peacock [1957] Ch 310 the words of the residuary gift were: "Upon trust for such of them my said wife Gladys Peacock my stepson Stanley Abbott Peacock and my son Douglas Peacock as shall survive me and attain the age of twenty-one years and if more than one in equal shares as tenants in common absolutely and if one only then the whole to that one."

At 314, Upjohn J (after referring to the decision of Maugham J in In re Woods [1931] 2 Ch 138) said: "It may not strictly be a class gift, for the wife, stepson and son all respectively stand in a different relation to the testator, but so far as lapse is concerned the testator has made it abundantly clear that this gift is tantamount to a class gift. It is a gift to a "group"…but for the purposes of lapse it has the characteristics of a class gift."

At 316, his Lordship added: "It can, in my judgment, be no valid ground of distinction that this is a gift not strictly to a class but to a group."

His Lordship extended the rule as stated by Jessel MR in Coleman and Jarrom to a situation where the law of public policy stepped in to render a member of a class incapable of taking. 16 From the foregoing there can be derived the following propositions relevant in the present case:

(1) The governing consideration is the intention of the testator. (2) The Court's primary concern should be the language of the testator that is actually before it. (3) The principle re class gifts is applicable to a group of persons who do not strictly constitute a class, if it appears that that was the testator's intention. (4) The principle applies upon the failure of the gift for any reason. It is not limited to a beneficiary predeceasing the testator. SUBMISSIONS 17 In the end, despite the written submissions and oral argument traversing considerable ground, the relevant submissions are in small compass. 18 Mr Hallen's primary submission was that the basic scheme that the deceased had conceived in dealing with the residuary estate was that two residuary beneficiaries were entitled to share the residuary estate equally, but that, if, for any reason, there was only one of the two persons able to take, then that person would take the whole of the residuary estate. The words in the will, "if more than one" must be given meaning. The words are consistent with the number being diminished before the time for determining how many are entitled. On this basis, the will should be construed as intending that on the failure of the gift to one residuary beneficiary the failed gift should pass to the other without reference to the principle of class gifts. 19 Turning, if necessary, to the class gift principle the deceased intended the gift of residue to be a gift to the body or the group of two as a whole. This is indicated by the use of the words, "if more than one". 20 In each case the conclusion is assisted by the presumption against intestacy. 21 On behalf of the second and third defendants it was submitted that the gift to Sue Austin and Stephen Leong is simply a gift to two named individuals and cannot be taken as a gift to a class or a group and the consequence is that, upon the gift to one of them failing, the failed gift falls into residue. The words "if more than one" are to be taken simply as words that describe the manner in which Sue Austin and Stephen Leong hold the residue, namely, in equal shares as tenants in common, or alternatively to be mere surplusage and therefore ineffective. 22 Alternatively, it was argued that "if more than one" is to be construed as a contingency, the only contingency these words import is in case a beneficiary predeceased the testator. This contingency did not eventuate. Mr Blackburn-Hart contended that there is nothing in the framework of the will which suggests that the testator considered the possibility of a beneficiary disclaiming the gift. The contingency therefore cannot apply and the gift must pass to the testator's family. CONCLUSION 23 In my view, Mr Hallen's submissions are correct. The words "if more than one" should not be regarded as nugatory if they can be given an operation. As used, they are not elegant or entirely easy, but they appear to me to indicate that the testator had turned his mind to the possibility that only one of two named beneficiaries would take under the gift. If there were not two, the whole of the gift should pass to that one. In my view there is no contra indication in the will. The presumption against intestacy assists this conclusion. The conclusion can be reached as a straightforward derivation of the testator's intention from the face of the will. Alternatively, if one turns to the class gift rules, one concludes that the testator by the use of the words "if more than one" evinced an intention that the residuary beneficiaries, although unrelated, should be treated as a class or a group. I conclude that Sue Austin's disclaimed share passes to Stephen Leong. 24 I do not intend in the circumstances to deal with the alternative argument on the basis that the gift is dependent on a contingency. It is not necessary to do so and the argument was, in any event, in my view, rather strained. Mr Hallen's reluctance to rely on it was understandable. 25 Short minutes should be brought in to give effect to my conclusion and any question of costs can be raised at that stage.

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