These proceedings concern the estate of the late Mary Catherine Duggan who died in April 2016. For convenience, and without disrespect, I will refer to the members of the deceased's family by their Christian names.
The deceased was married to John Malcolm Duggan, who survived her. Together they had six children: Catherine Duggan; Christopher Duggan; Anne Duggan; James Duggan; Michael Duggan; and Bernard Duggan. The deceased was survived by five of her children, but Bernard predeceased her. She was survived by thirteen grandchildren, six granddaughters and seven grandsons.
The deceased's last will was made in December 2011. Under the will, she appointed Catherine and Christopher as her executors and trustees. After payment of her debts, legacies, funeral and testamentary expenses the deceased left her estate on trust in the following manner:
to her daughters, Catherine and Anne, she left an apartment property at Chepstow Street, Randwick, in equal shares as joint tenants;
to her daughters and granddaughters, she left specific bequests of a piece of jewellery each; and
to her husband, John, she left the residue of her estate, provided that he survived her by thirty days (a condition which was fulfilled).
The Randwick property was valued for the purposes of probate at approximately $850,000. The estate also included shares valued at more than $2.6 million, which fell into residue. The inventory of property also disclosed properties jointly owned by the deceased and her husband, John, which passed to him by survivorship, valued at more than $1.1 million.
Probate of the deceased's will was granted by this Court in October 2016. I was informed that a family provision application was made on behalf of the deceased's son, Michael, which has been settled.
According to the evidence before the Court, during her lifetime, the deceased expressed a desire that the female members of her family should benefit from her estate to a greater extent than the jewellery bequests in her will. An affidavit from Catherine states that there were discussions between them about the deceased's testamentary plans, in the course of which the deceased would say that the Randwick property was "for the girls". The evidence does not identify the immediate context for these statements, nor when the last of these conversations took place. The deceased did not go into any further detail as to how the property should be held or administered other than saying it was "for the girls".
An affidavit from Anne states that the deceased said to her that, in family life generally, daughters got "a rough deal" and needed "to be looked after". The affidavit also states that "every few months" over the period of twenty years or so before the deceased's death, she said that she had left the Randwick property to "the girls". These conversations continued after the deceased had made her will in 2011, right up until early 2016. Again, the benefit to "the girls" was not further defined.
According to the Statement of Facts filed in the proceedings, the deceased also made statements to her husband, John, to the following effect:
I want Randwick (meaning the Randwick property) to be dedicated to the needs of our granddaughters, so that they have the opportunities denied to me growing up;
What shall I do with Randwick? Should I sell it now and give the money to the girls? (meaning our granddaughters) or hang on to it and let them have the rent?; and
I want the girls to get it (meaning the Randwick property).
The Statement of Facts also records that the deceased also made statements to her son, Christopher, to the following effect:
I am going to give my unit at Randwick to the girls (meaning her granddaughters). I want Catherine and Anne to look after it; and
It is for the girls.
Those advising Catherine and Anne have raised a question as to whether these statements by the deceased had the effect of imposing trust obligations on the gift of the Randwick property in the will which is, on the face of it, an absolute gift in their favour. Such a trust is usually referred to as a "secret trust".
The "secret trust" doctrine is an illustration of equity's intervention to prevent fraudulent or unconscientious behaviour. If property is left under a will to a beneficiary, apparently absolutely, but subject to a separate understanding between testator and beneficiary that the property so left is to be applied for the benefit of someone else, then equity will enforce that understanding. Equity does so because it would be unconscientious for the beneficiary to accept the gift but ignore the understanding on which the gift proceeded: Voges v Monaghan (1954) 94 CLR 231 at 233, 240-241; Ledgerwood v Perpetual Trustee Co Ltd (1997) 41 NSWLR 532 at 535-540.
In this case, the issue may not have much practical significance in the end. Catherine and Anne do not intend to retain the Randwick property for their benefit. Should the Court conclude that they are to receive the Randwick property free of any trust, they propose nevertheless to sell it and distribute the proceeds among the deceased's six granddaughters. They offered to make an undertaking to the Court to this effect. But even if it is likely that the deceased's granddaughters will benefit from the Randwick property one way or another, the parties are entitled to have the Court determine whether there are any subsisting trust obligations.
The proceedings were originally commenced by Catherine and Anne by way of Summons as an application for judicial advice on various questions pursuant to the Trustee Act 1925, s 63. That section relevantly provides:
63 Advice
(1) A trustee may apply to the 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.
Under the Summons as initially framed the plaintiffs sought the opinion, advice, or direction of the Court on various questions. Question (1) was whether:
a) the Plaintiffs hold the [Randwick property] (the "Property") on trust for [the deceased's granddaughters]; or
b) the Plaintiffs hold the Property on trust for [the deceased's daughters and granddaughters]; or
c) The Plaintiffs own the Property absolutely.
Further consequential questions were posed depending on the answer given. The Summons was subsequently amended, so as to supplement the consequential questions.
The Summons joined the six granddaughters of the deceased as the defendants. Submitting appearances were filed on behalf of five of them. The Summons came on for hearing before me on 5 March, with the plaintiffs, Catherine and Anne, represented by counsel. Michael, the deceased's son, appeared in person as tutor for his daughter, Ruby, who was named as the fourth defendant.
Proceeding by way of application for judicial advice gave rise to a technical difficulty. The Court's power under s 63 to give advice to a trustee depends upon the Court first being satisfied that a trust subsists. If there is no trust, then there is no trustee and there is no entitlement to advice. Should the Court conclude (as Catherine and Anne put as their primary contention) that the property was given to them absolutely, the appropriate remedy would be a declaration to that effect, rather than judicial advice.
Although there is an obstacle to the Court giving judicial advice to Catherine and Anne as trustees under the putative secret trust, s 63 enables advice to be given to executors and trustees under testamentary trusts. This is because, under s 5, "trust" is defined to include "the duties incidental to the office of legal representative of a deceased person" and "trustee" has an equivalent meaning. Whether the gift in the will in favour of Catherine and Anne is qualified by a secret trust is not a question of interpretation of the will (the relevant "trust instrument" in the language of s 63(1)) in the strict sense. During the hearing, I thought that it might be characterised as a question "respecting" the interpretation of the will, in the sense that it potentially qualified the effect of the will. On reflection, I do not think that this is correct. Where a secret trust arises from dealings between the deceased and beneficiaries under the deceased's will, it is the separate dealings which give rise to the equity. The will would otherwise take effect in accordance with its true construction, but equity prevents the beneficiaries from asserting that true construction where it is unconscientious for them to do so: Re Snowden [1979] Ch 528 at 535.
Nevertheless, I think that the question whether the gift in the trust deed was qualified by a secret trust is a question "respecting the management or administration of" the deceased's estate ("the trust property", in the language of s 63(1)). If a secret trust were shown to exist, it could be enforced at the suit of the beneficiaries. But I think it could also be enforced at the suit of the deceased's executors who can enforce the rights she would have had as "settlor" of the secret trust (I have used the term "settlor" in inverted commas because the term is usually used for an express trust and a secret trust may be more appropriately classified as a constructive trust: see J D Heydon, M J Leeming, Jacobs' Law of Trusts in Australia (LexisNexis Butterworths, 8th ed, 2016) [3.06]). Accordingly, the executors may properly, as part of their duties in administering the deceased's estate, ask the Court to determine whether there is an enforceable secret trust.
Thus the questions posed in the Amended Summons can be answered by way of judicial advice to the deceased's executors and trustees. To this end, following the hearing on 5 March, the proceedings were reconstituted by adding Christopher, the other executor and trustee, as an additional plaintiff.
It is somewhat difficult to reconcile the deceased's conduct with the intentions which she expressed to her family members that the Randwick property should ultimately be for the benefit of "the girls". Although the deceased apparently told Christopher that the property was to be left to Catherine and Anne, the deceased did not tell them this herself. Anne's evidence establishes that statements of the deceased's wish to benefit "the girls" continued up until 2016, so the case is not simply one where the deceased earlier expressed testamentary views and then changed her mind when she made her will. In those circumstances, it is not clear why the deceased did not simply, in her will, leave the property to "the girls" or, at least, tell Catherine and Anne that she was leaving the property to them but that she expected them to hold it for the benefit of "the girls". But whatever the explanation for the deceased's conduct may be, I am satisfied that no secret trust arises. The conversations between the deceased, on the one hand, and Catherine and Anne, on the other, fall far short of an explicit understanding that the property would be left to Anne and Catherine on particular terms. As I have mentioned, the deceased never actually even told them that she was leaving them the property. The conversations between the deceased and her husband and her son, Christopher, are hardly more detailed. But in any event, they are irrelevant for present purposes because they did not involve the putative secret trustees, Catherine and Anne.
Even if there had been some understanding between the deceased, on the one hand, and Catherine and Anne on the other, as to the basis on which the deceased was leaving the property to them in her will, it would be difficult to determine with the necessary degree of certainty what the terms of any such secret trust were. As mentioned, the deceased did not identify "the girls". Nor did the deceased specify the shares which each of "the girls" were to receive, or how the property was to be applied for their benefit.
Where a gift is accompanied by a statement from the donor that the gift is to be used to benefit others, it does not necessarily give rise to a trust. In Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 Dixon J said (at 418-419):
When a provision is made by way of gift, testamentary or inter vivos, directing a payment to one person and expressing a purpose beneficial to another or others, it may receive one or other of at least four different interpretations.
(1) The expression of the purpose may be taken as but a statement of the donor's motive or of his expectation. If so, the first person takes the gift absolutely and incurs no legal or equitable obligation to fulfil the purpose. Examples of such a construction will be found in Benson v. Whittam (1); Thorp v. Owen (2); Webb v. Wools (3); Byne v. Blackburn (4); Scott v. Key (5); Lambe v. Eames (6); Mackett v. Mackett (7).
(2) The purpose may be so stated as to amount to a condition upon and subject to which the first person takes the gift beneficially. By accepting it the done incurs an equitable duty to perform the condition which is annexed to the gift. If the condition requires a money payment, it must be made whether the property given is or is not adequate for the purpose. (See per Lord Cairns in Attorney-General v. Wax Chandlers Co. (1); Messenger v. Andrews (2).)
(3) The first person may take the gift beneficially, but the statement of the purpose, particularly if it involves the payment of money, may operate as an equitable charge thereon in favour of the other or others. Bequests and devises to parents for the maintenance and benefit of their children are from their very nature peculiarly susceptible of this interpretation. "Where a fund is bequeathed to a parent, subject to a trust to maintain and educate his children, the surplus will belong to the parent; it is a gift subject to a charge" (Spence's Equitable Jurisdiction (1849), vol II., p. 466).
…
(4) The direction to pay the first person may be regarded as conferring no beneficial interest upon him, and, whether he receives it strictly in the character of a trustee or in some other character such as guardian, the expression of the purpose may amount to a statement of objects to which he is bound to apply the fund.
Dixon J was speaking of cases where the gift in favour of one person and the expression of benefit to another occur in the same instrument or oral statement. In this case, the gift was contained in the deceased's will and the expression of benefit to "the girls" occurred separately. But I do not think this affects the analysis. In my opinion, the proper objective interpretation of the deceased's statements to Catherine and Anne about "the girls" benefiting from the Randwick property was that they were no more than statements of the deceased's wishes, of no binding effect on Catherine and Anne at law or in equity. The circumstance that the deceased did not make any formal provision to this effect in her will supports this characterisation. So does the indefinite nature of the benefit to "the girls".
As I understood Michael's submissions at the hearing on 5 March, he accepted that the conversations between his mother and his sisters did not give rise to a secret trust. He submitted instead that the proposed division of the property by Catherine and Anne was unfair to the younger granddaughters, including Ruby (who I was informed was only 16). He suggested that there should be some adjustment to the shares so that the younger granddaughters would receive more, and the older granddaughters less.
I cannot accept these submissions. The issue before the Court is whether the gift to Anne and Catherine was subject to the terms of a trust. If, as I have concluded, it was not, then no further question arises. The property belongs to Catherine and Anne and should they choose to make a gift of it to the deceased's granddaughters, it is up to them as to the terms on which such a gift is to be made. Even if the Court considered that some division other than equal division would best represent the deceased's wishes (and there is no evidence either way on that question), there would be no legal basis on which the Court could impose some other division on Catherine and Anne.
By the same token, I do not think the Court should accept the undertaking from Catherine and Anne to sell the Randwick property, and distribute its net proceeds equally among the deceased's granddaughters. The truth is that, if Catherine and Anne do propose to sell the property and distribute the proceeds to the deceased's granddaughters, how to do so (and in particular whether the distribution should be equal or not) is entirely up to them. For the Court to accept an undertaking to distribute it equally might give the misleading impression that equal division is, in some way, required in the circumstances.
The proceedings were re-listed before me on 20 March in case any party wished to make further submissions consequent upon the reconstitution of the proceedings as an application for judicial advice by the deceased's executors and trustees. Michael appeared again for Ruby. On this occasion, he abandoned his earlier submission that the distribution between the deceased's granddaughters should not be equal but should instead favour the younger granddaughters. Instead, he submitted that the proceeds of the Randwick property should be distributed to other members of the deceased's family. As I understood it, he contended that the distribution made in the will was unfair, and possibly subject to a family provision challenge.
As I have mentioned, I was informed that Michael's own family provision claim had been settled. There is nothing in the material before me to suggest that any other challenge is likely (or even possible, given the lapse of time since the grant of probate). But in any event, as I have already indicated, the Court has no power, having concluded that the gift in the will was an absolute one, to require Catherine and Anne to deal with the property in any particular way. Whether they wish to make use of the proceeds of the property to benefit other members of the deceased's family, and if so in what way, is entirely a matter for them.
The plaintiffs did not seek an order for costs against any of the defendants. Initially, an application had been foreshadowed for the costs of the plaintiffs (at that stage, Catherine and Anne) to be paid out of the proceeds of the Randwick property. Consistently with the reconstitution of the application as one for judicial advice on the part of the executors and trustees, counsel for the plaintiffs at the hearing on 20 March sought an order that the costs of the plaintiffs (Catherine, Anne and Christopher) be paid out of the deceased's estate.
I accept that it is common, when a court gives judicial advice in response to an application by the trustee under s 63(1), for an order to be made that the trustee's costs of the application be paid out of the assets of the trust. But it is not essential for the Court to make such an order. The trustee has a right of indemnity out of the trust assets for expenses properly incurred in the administration of the trust: Trustee Act 1925, s 59(4). Usually the costs incurred by the trustee in obtaining judicial advice would be covered by this indemnity. But there may be cases in which the trustee's right to recover the costs, or the whole of the costs, so incurred is contestable. In such a case, the trustee's entitlement to apply trust assets to the payment of such costs is determined in the ordinary course of administration of the trust (if necessary, by means of an application to this Court), in the same way as for any other contestable item of expense incurred by the trustee.
In the present case, the application was not initially framed as an application for judicial advice by the trustees of the deceased's estate. Questions may arise as to whether the costs of the application, especially costs incurred prior to the proceedings being reconstituted, can properly be seen as costs incurred by the trustees on behalf of the estate. Should the costs be paid out of the estate, then the party affected would be the plaintiff's father, John, as the residual beneficiary. I do not think I should make an order which would have the effect of foreclosing the question of indemnity, when John is not even a party to these proceedings. If the plaintiffs wish to pursue recoupment of the costs of these proceedings, or some of them, out of the estate, they will, of course, be free to do so in the ordinary way.
The orders of the Court are as follows:
The questions posed in the Amended Summons will be answered as follows:
1(a). No.
1(b). No.
1(c). Yes.
1A. Does not arise.
Does not arise.
Does not arise.
[2]
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Decision last updated: 26 March 2018