BARNS v BARNS No. SCCIV-99-333 [2001] SASC 187

The first defendant is the son of the deceased and is the executor of his estate. The second defendant is the widow of the deceased and is the sole beneficiary under his Will. There are two infant claimants, two of the children of the plaintiff, who also, pursuant to Section 7(1)(b) of the Act seek an order for provision out of the estate.

The claims made by the plaintiff and the claimants are resisted by the first defendant, not in his capacity as executor, but in his capacity as the beneficiary of the trust which, it is alleged, has arisen by virtue of a Deed between the deceased, the second defendant and the first defendant dated 2 May 1996 (the Deed) whereby the deceased and the second defendant covenanted to make mutual Wills leaving their estate to each other and that the survivor of them would leave his or her estate to the first defendant.

The second defendant also opposes the claims of the plaintiff and the claimants.

Apart from any other ground of defence that may be available to the defendants, they each maintain that because of the Deed of 2 May 1996, there is now no property in the estate of the deceased which may be the subject of an order by the Court for provision out of the estate. This ground of opposition was known to the plaintiff when she commenced the proceedings because she has dealt with it specifically in her statement of claim filed in support of her claim. The plaintiff (and the claimants) assert that the Deed was void because it is contrary to public policy and that consequently no trust can arise under the Deed in respect of the property forming the estate of the deceased. The plaintiff also contends that, even if a trust of the type relied upon by the defendants has arisen under the Deed, the Court may nevertheless make an order in favour of the plaintiff in respect of the property the subject of the trust if the Court has otherwise made out her claim pursuant to the provisions of the Act.

Prior to the trial, on the application of the parties, I directed that the issues relating to the validity of the Deed be heard and determined before any other issues in the action. The parties requested a trial on these preliminary points because, if the Court determined that the Deed was valid and that a trust thereby arose in favour of the first defendant which precluded the beneficial interest in the deceased's property falling into the estate of the deceased, the question of the plaintiff's and the claimants' entitlement to an order would be determined without the parties having to participate in what otherwise would be a lengthy trial of all of the issues in dispute between the parties. It was thought that if the Court decided against the defendants on these issues, such a determination would assist the parties in any settlement negotiations that they might pursue after such a determination.

Prior to the trial of the preliminary issues, the claimants by their counsel announced that they did not wish to be heard separately from the plaintiff at the trial. They agreed to be bound by the result of the trial. In addition, the first defendant was not represented by counsel at the trial. He had previously announced to the Court by his counsel that he would rely upon the submissions advanced by the second defendant at the trial of the preliminary issues and would be bound by the result.

At the trial the plaintiff was represented by Mr Tilmouth QC and Ms M Crichton. The second defendant was represented by Mr Howard and the first defendant attended at the hearing.

The parties agreed certain facts and documents which were put before me. The following narrative is taken from the amended agreed facts and from the agreed documents. It is convenient to refer to the deceased and the parties by their first names. Lyle (the deceased) and his wife Alice (the second defendant) carried on business together as farmers near Wudinna and elsewhere from about 1950. Malcolm (the first defendant) was born on 10 June 1950 and is the only son of Lyle and Alice. Kathryn (the plaintiff) was born on 1 September 1957 and is the only daughter of Lyle and Alice.

Malcolm left school at age 16 and thereafter at all material times worked on the farming properties used in the family farming venture. In 1980 the plaintiff married. At that time Lyle and Alice advanced the sum of $100,000.00 by way of a gift. Alice asserts that the gift was to Kathryn but Kathryn says that the gift was to her and her husband to enable them to set up a business. There are other gifts which are the subject of dispute but it is agreed that it is not necessary for me to resolve these disputes at this stage.

In about 1987 a business venture of the plaintiff and her husband failed. The plaintiff became bankrupt. Her marriage was dissolved in June 1989.

On 20 August 1988 Lyle and Alice executed Wills, copies of which were provided to me. They were revoked by the mutual Wills executed by Lyle and Alice on 2 May 1996, copies of which have also been provided to me.

In October 1995 Lyle, Alice and Malcolm consulted their accountant, Mr David Carr, in relation to procedures by which they could ensure that the farming properties, plant, equipment and livestock would pass to Malcolm on the death of the survivor of Lyle and Alice. They subsequently received advice from a solicitor by letter dated 31 October 1995. A copy of that letter has been provided to me. There are some assertions of fact made in that letter which are disputed by the plaintiff but, again, it is not necessary for me to resolve that dispute for the purposes of determining the preliminary issues.

The Wills of Lyle and Alice dated 20 August 1988 made no provision for Kathryn apart from the forgiveness of any indebtedness existing between the testator and Kathryn as at the date of death of the testator. Lyle and Alice left to each other the proceeds of any insurance policies on their respective lives and the entire residuary estate passed to Malcolm.

The solicitor's letter of 31 October 1995 was addressed to Mr Carr, the accountant. The relevant parts are as follows:

"I refer to our recent discussions regarding the Barns family.

As requested, I am setting out below the steps I believe Lyle and Alice Barns should take should they wish to effectively exclude their step-daughter from participating in the estate of the survivor of them. This is on the assumption that the first to die of Lyle and Alice will leave their entire estate to the survivor."

In the letter Alice is wrongly referred to as the step-daughter of Lyle and Alice. The letter continues:

"You have advise [sic] me that the step-daughter is currently facing bankruptcy even though she has been provided with substantial assets in the past. The step-daughter has sought monetary assistance from Lyle and Alice who are willing to assist. However, as a result, Lyle and Alice wish to ensure that the step-daughter will not benefit from the estate of the survivor which will, in effect, be left wholly to Malcolm.

The provisions of the Inheritance (Family Provision) Act ('Act') operate to give certain individuals claims against the estates of other related individuals.

I will not provide a formal opinion on the effect of this legislation unless requested.

However, in summary, should the survivor of Lyle and Alice leave their entire estate to Malcolm without any provision being made for the step-daughter, then the step-daughter will have a legal claim against the survivor's estate pursuant to the Act.

It would safe [sic] to assume that, in the brief circumstances outlined by you to me, the step-daughter would have a claim of some hundreds of thousands of dollars at the very least.

Should she be bankrupt at the time of death of the survivor of Lyle and Alice, the right to conduct this action would vest in the Official Receiver. However, the Official Receiver is unlikely to take on an action such as this should he consider it would be contentious.

A number of solutions to the problem come to mind and I set same out below together with my thoughts as to their advisability:-

1 A gift could be made to the step-daughter today as requested by her, subject to execution by her of a deed whereby she agrees, in consideration of the gift, to make no claims in the future against the estates of either Lyle or Alice.

I advise that this device will not succeed in excluding the operation of the Act. Although a court would take the gift into account in determining the entitlement of the step-daughter, it is not possible to exclude the operation of the Act by contracting out of the Act in this manner.

2 Lyle and Alice could establish various discretionary trust [sic] and transfer all assets into those trusts. The control of those trusts could be given either now or upon death to Malcolm.

As a result, Lyle and Alice would be left with no assists [sic] in their personal names and any claim under the Act would not be worth pursuing.

However, the problem with this particular solution is, in the main, the stamp duty expenses in transferring the land into the trust. Potential stamp duty in itself could be over $200,000.00

3 It is possible for Lyle and Alice to enter into a contract with Malcolm whereby they agree that the survivor of them will leave the entire estate to Malcolm upon the death of the survivor.

The effect of this contract is that the provisions of the Act are avoided as the contractual provisions can be legally enforced in priority to any claim made under the Act.

This approach provides an effective and cost efficient method of achieving our aim. However, Lyle and Alice should be made aware that once the contract has been entered into, it will not be possible to alter same without Malcolm agreeing to any alteration."

The third solution was put into effect. On 2 May 1996 Lyle, Alice and Malcolm entered into the Deed, Recitals D and E of which are as follows:

"D Lyle has agreed to act in such a manner as to ensure that all property owned by him at his death devolves in the manner set out in the Will unless Alice and Malcolm consent in writing to Lyle acting otherwise.

E Alice has agreed to act in such a manner as to ensure that all property owned by her at her death devolves in the manner set out in the Will unless Lyle and Malcolm consent in writing to Lyle [sic] acting otherwise."

I assume that the reference in Recital E to "Lyle acting otherwise" should be a reference to Alice acting otherwise. By the Deed, Lyle and Alice covenanted to make a Will respectively in the form of the First and Second Schedules to the Deed. Wills in those forms were executed by Lyle and Alice on 2 May 1996. By the Deed both Lyle and Alice covenanted not to revoke or alter their respective Wills without the written consent of the others. Clause 4 of the Deed is as follows:

Lyle and Alice have agreed to act in such a manner as to ensure that all property owned by them at their respective deaths devolves in the manner set out in Lyle's Will and Alice's Will respectively unless Malcolm or Malcolm's legal personal representative consents in writing to Lyle and/or Alice (as the case may be) acting otherwise."

Clause 5 of the Deed provides that Lyle and Alice acknowledge that the Deed is irrevocable, subject to Clause 4.

Clause 6 of the Deed provides that if there is default in compliance with the terms of the Deed by Lyle or Alice, the other parties to the Deed shall be entitled to specific performance of the terms of the Deed.

By their respective Wills executed on 2 May 1996, Lyle and Alice left their estate to each other provided that the one survives the other by a period of 30 days. If that did not occur they each left their estate to Malcolm.

There is no doubt that a contract for mutual Wills may be enforced by the parties to the contract and that in the case of mutual Wills of the type executed by Lyle and Alice, a constructive trust arises in favour of the ultimate beneficiary, in this case Malcolm. If the Deed is not void, Malcolm is able as the beneficiary of the trust to enforce it and, because he is a party to the Deed, he is able to enforce the Deed by obtaining specific performance of the terms of same. So much is evident from the decision of the High Court in Birmingham and Ors v Renfrew and Ors [1937] HCA 52; (1936) 57 CLR 666, in particular the reasons for judgment of Dixon J (as he then was) at page 680 et seq. His Honour said (at 683):

"It has long been established that a contract between persons to make corresponding wills gives rise to equitable obligations when one acts on the faith of such an agreement and dies leaving his will unrevoked so that the other takes property under its dispositions. It operates to impose upon the survivor an obligation regarded as specifically enforceable. ... But the doctrines of equity attach the obligation to the property. The effect is, I think, that the survivor becomes a constructive trustee and the terms of the trust are those of the will which he undertook would be his last will."

Later in his reasons his Honour referred to the ability of the testators to deal with the inherited property during their lifetime. This is the case applicable to these parties. He said (at 689):

"There is a third element which appears to me to be inherent in the nature of such a contract or agreement, although I do not think it has been expressly considered. The purpose of an arrangement for corresponding wills must often be, as in this case, to enable the survivor during his life to deal as absolute owner with the property passing under the will of the party first dying. That is to say, the object of the transaction is to put the survivor in a position to enjoy for his own benefit the full ownership so that, for instance, he may convert it and expend the proceeds if he chooses. But when he dies he is to bequeath what is left in the manner agreed upon. It is only by the special doctrines of equity that such a floating obligation, suspended, so to speak, during the lifetime of the survivor can descend upon the assets at his death and crystallize into a trust."

"But I do not see any difficulty in modern equity in attaching to the assets a constructive trust which allowed the survivor to enjoy the property subject to a fiduciary duty which, so to speak, crystallized on his death and disabled him only from voluntary dispositions inter vivos."

There have been a number of cases where the principles enunciated by Dixon J have been applied. A recent decision is that of Santow J in Hubbard and Anor v Mason and Ors, an unreported decision delivered on 9 December 1997, BC 9706574. In that case Santow J undertook a detailed analysis of the cases dealing with the principles applicable to mutual Wills. His Honour sets out fourteen numbered paragraphs which deal exhaustively with those principles. It is not necessary for me to set them out here. It is sufficient to say that I gratefully adopt his Honour's analysis of the cases which forms the basis of the following conclusions in relation to this matter.

I emphasise at this stage of my reasons that the conclusions I make are based on an assumption that the Deed of 2 May 1996 is not void as being contrary to public policy.

At the time that Lyle, Alice and Malcolm entered into the Deed, an institutional constructive trust arose in favour of Malcolm. It is a floating trust of the type referred to by Latham CJ and Dixon J in Birmingham v Renfrew (supra) and by Santow J at paragraph 10 of page 30 of his reasons. The trust became irrevocable on the death of Lyle. In particular, the trust is not able to be revoked by Alice after Lyle's death by revocation or alteration of her Will unless Malcolm consents in writing to her doing so. The property the subject of the trust crystallizes on Alice's death. Nevertheless, the property which Alice receives by the Will of Lyle is impressed with the trust although she may dispose of that property (other than by way of a voluntary disposition) during her lifetime. This means, contrary to the submission of the plaintiff, that the property inherited by Alice under Lyle's Will is not available for distribution according to any order that may be made by the Court on the plaintiff's or the claimants' application.

The reason why the Court cannot make an order in respect of property which is impressed with a trust arises from the fact that the order of the Court takes effect as if it were a codicil to the Will made immediately prior to the testator's death. In Schaefer v Schuhmann and Ors [1972] AC 572, Lord Cross, who delivered the majority judgment of the Privy Council, said (at 585E et seq):

"Their Lordships turn now to the question of the jurisdiction of the court under the Family Maintenance Act. The Act contains no definition of the 'estate' out of which the court is empowered by section 3(1) to make provision for members of the family. It is, however, clear that it cannot mean the gross estate passing to the executor but must be confined to the net estate available to answer the dispositions made by the will. Again if one reads the section without having in mind the particular problem created by dispositions made in pursuance of previous contracts the language suggests that what the court is given power to do is to make such provision for members of the testator's family as the testator ought to have made, and could have made, but failed to make. The view that the court is not being given power to do something which the testator could not effectually have done himself receives strong support from section 4(1) which says that a provision made under the Act is to operate and take effect as if it had been made by a codicil executed by the testator immediately before his death. That being the apparent meaning of the Act their Lordships pass to consider what are the rights of a person on whom a testator has agreed for valuable consideration under a bona fide contract to confer a benefit by will."

If the property of Lyle was impressed with a trust immediately prior to his death, he could not have disposed of the property by testamentary disposition other than in accordance with the Deed. The Act only empowers the Court to make provision for the plaintiff that the testator "could have made". Consequently, if Lyle's property at his death was impressed with a trust, the Court has no jurisdiction in relation to it.

In arriving at that conclusion it has been necessary to consider the nature of the trust which arises either at the date of execution of the Deed or subsequently. Birmingham v Renfrew (supra) refers to a floating trust which arises on the execution of the Deed and crystallizes on the death of the second testator. It is possible that a number of trusts may arise both actually and contingently. Upon the execution of the Deed it might be said that two trusts arose in respect of which Lyle and Alice were the constructive trustees for each other of their respective property. At that time a trust may arise contingently because there is a substitution clause in each of the Wills of Lyle and Alice. If the one fails to survive the other, the property devolves upon Malcolm. It might be said that in those circumstances, subject to either Lyle or Alice not surviving the other by a period of 30 days, a trust contingently arises in favour of Malcolm. If it is assumed that either Lyle or Alice survives the other by a period of 30 days, upon the death of one of them, a new trust arises whereby, as in this case, Alice became the constructive trustee of the inherited property in favour of Malcolm.

Whether what has occurred is characterised as a series of trusts and contingent trusts or is the one trust in favour of Malcolm as the ultimate beneficiary, the fact remains that at the date of death of Lyle, the property left by him to Alice was impressed with a trust in favour of both Alice and Malcolm and, as such, remains beyond the reach of the Court.

It was submitted by the plaintiff that because an order of the Court for provision out of the deceased's estate takes effect as a codicil to a Will made immediately prior to the death of a testator (Section 10(a) of the Act), the trust did not come into being. To make good that submission, the plaintiff has to establish that Lyle was free to make a codicil different from the terms of the Deed. He was clearly not able to do so. Even if he did, either Malcolm or Alice could enforce the trust (or trusts) which arose under the Deed to the exclusion of the disposition of the property by the codicil. As I have said above, if the testator cannot make the codicil, the Court cannot make an order to the same extent.

I turn to a consideration of the question of whether or not the Deed is void. If it is, no trust can arise which prevents Lyle's property from falling into his estate.

It is first necessary to consider the purpose of the Deed. It is clear from the advice given by letter by the solicitor to the parties to the Deed prior to its execution that the purpose of the Deed was to prevent the plaintiff from making a claim under the Act. The purpose of the Deed is reflected in Recitals D and E of the Deed which have been set out earlier in these reasons. As such, for the reasons set out below, I think it is contrary to public policy. I reject the argument that the Deed is no more than a legitimate exercise by the parties to the Deed of their powers of disposition in respect of property held by them. It is no answer to such a conclusion that the plaintiff may have had benefits conferred upon her during the lifetime of Lyle or that both Lyle and Alice were concerned that the plaintiff may be bankrupt at the time of the death of one of them. In the events which have occurred, that concern on their part has not been realized.

A number of cases were cited in support of the proposition that where an individual covenants not to make a claim under the Act in respect of the estate of a deceased person, or where testators provide in their Wills that if a claim is made under the Act, any benefit under the Will is forfeited, such a covenant or provision is void as being contrary to public policy. It was argued by the plaintiff that if such a covenant or provision were void, a Deed, the purpose of which was to preclude a person not a party to the Deed from making a claim under the Act in respect of a deceased estate, would also be void as being contrary to public policy.

In Lieberman and Anor v Morris [1944] HCA 13; (1944) 69 CLR 69, the High Court dealt with a case where a person covenanted with the testator not to make a claim under the Act. Three of the judges came to the view that such a provision was void as being contrary to public policy. Latham CJ and McTiernan J thought that the covenant was void, but they based their different conclusions on the construction of the relevant statute which contained provisions relating to a contracting out of the requirements of the New South Wales Act which are not present in the South Australian Act.

Rich J referred to contracts which are not enforceable as being contrary to public policy. He said (at 84):

"There are, however, some contracts which are not enforceable, and a legal right which has been purported to be surrendered or discharged by such a contract remains in full force and effect, and may be put in action notwithstanding the contract. Amongst the contracts which are unenforceable are those which are contrary to public policy. An agreement or promise objectionable only because opposed to public policy is not illegal, it is merely regarded as being so tainted that the law should not lend its aid to its enforcement ... Speaking generally, public policy may be said to be policy in the observance of which the welfare of the community is involved ... Whenever a statute creates new rights, public policy in a broad sense is always involved, because the legislature must be assumed to have thought it desirable in the public interest that the rights should be brought into existence. But it does not necessarily follow that an agreement to release or abandon rights so conferred should be regarded as opposed to public policy in general or even to the policy of the particular Act. As was pointed out in Admiralty Commissioners v Valverda (Owners) (1938) AC at p 185, 'the problem must be solved on a consideration of the scope and policy of the particular statute'."

"But the evident purpose of this legislation ... is ..., that of providing for the proper maintenance, education or advancement of members of a family who would otherwise be left without adequate provision, and might, in many cases, become a charge on the community. It is for this purpose, and this alone, that members of a family are invested with the right to invoke the exercise by the court of its discretion. I think that the Act now in question is designed to serve a public purpose as well as that of benefiting individuals, the purpose being, as it was put by the Privy Council in Dillon v Public Trustee of New Zealand (1941) AC at pp 303, 304, 'to secure, on grounds of public policy, that a man who dies, leaving an estate which he distributes by will, shall not be permitted to leave widow and children inadequately provided for.'

It follows, in my opinion, that the widow's agreement was not binding upon her, and did not preclude the Supreme Court, in the proper exercise of its jurisdiction, from making an order in her favour if it thought such an order to be necessary and proper."

Dillon v Public Trustee of New Zealand (supra) was not followed in Schaefer v Schuhmann (supra), but what the Privy Council said in the latter decision did not detract from the statement in Dillon referred to by Rich J in Lieberman v Morris (supra).

In In Re Chester, deceased, (1978) 19 SASR 247, King J (as he then was) had to consider a provision in a Will, the effect of which was that if a beneficiary under the Will made a claim for provision under the Act, the benefit derived under the Will was forfeited. His Honour referred to Re Gaynor [1960] VicRp 99; [1960] VR 640 where O'Bryan J held that such a forfeiture condition was void, one of the grounds being that it was contrary to public policy. King J observed (at 262) that that ground was founded upon Lieberman v Morris (supra). His Honour agreed that the principle in Lieberman v Morris applied to a forfeiture provision in a Will and he decided that the provision in the Will under consideration should be declared to be void.

The question arises in this matter as to whether or not the principle applies to a Deed of the type entered into between Lyle, Alice and Malcolm in May 1996. There is, as far as I am aware, no authority directly in point. In cases where a forfeiture provision in a Will has been held to be void, it is to be noted that the provision purports to disinherit the beneficiary who makes a claim under the Act, in which event, if the provision is given effect to, no provision is made for the beneficiary under the Will. It is not a matter of a potential beneficiary agreeing not to make a claim. Rather, the beneficiary inherits nothing under the Will if the forfeiture provision is given effect to. Because the type of beneficiary covered by the forfeiture provision is one who would also be able to make a claim under the Act, the beneficiary would then be able to make a claim under the Act on the basis that there was no provision made for him or her under the Will. This means that such a beneficiary only stands to be less well-off if the provision awarded by the Court was less than the benefit conferred by the Will. In those circumstances, the Courts have held that the forfeiture provision is void as being contrary to public policy.

In my opinion, where the purpose of a contract is to preclude a claim which might otherwise be made by a person on the estate of the deceased pursuant to the provisions of the Act, the Deed, to that extent, should be declared to be void. I accept, as did Rich J in Lieberman v Morris, that parties are free to regulate their affairs in the manner most favourable to them for a variety of purposes. Dispositions of property with a view to limiting the incidence of taxation is a clear example of where, within reasonable limits, the Courts uphold the validity of such transactions. However, the Act gives effect to a public policy which does not apply to a revenue statute. The Act is centred upon the testator's moral duty to the claimant. The other side to that coin is the purpose in the Act which seeks to avoid those left without adequate provision becoming burdens on the State: Coates v National Trustees Executors and Agency Co Ltd and Anor [1956] HCA 23; (1956) 95 CLR 494, per Williams J at 513.

In Schaefer v Schuhmann (supra) Lord Cross said (at 592F):

"The question whether contracts made by a testator not with a view to excluding the jurisdiction of the court under the Act but in the normal course of arranging his affairs in his lifetime should be liable to be wholly or partially set aside by the court under legislation of this character is a question of social policy upon which different people may reasonably take different views."

I think it is significant that his Lordship specifically referred to contracts that were with a view to excluding the jurisdiction of the Court. It seems to me that if a contract is made with that end in mind, it may well be susceptible to being declared void as being contract to public policy. This is so, in my view, whether the purpose be to exclude the jurisdiction of the Court or to exclude a claim which might be made by a potential claimant.

For these reasons, I consider that the principles set out in Lieberman v Morris that the term of a contract by which a party to that contract foregoes the right to seek provision under the Act is void as being contrary to public policy, applies with equal force to the Deed the subject of these proceedings. There will be a declaration that the Deed is void as being contrary to public policy. It follows that, if the Deed is void, no trust can arise as alleged by the defendants or at all.