Estate Reid; Roberts v Moses and Palmer

THE PLAINTIFF'S SUMMONS AND "CONSTRUCTION" MOTION

The exception is located in the present proceedings, commenced by a summons filed on 6 October 2015.
The plaintiff (Peta Roberts) is a daughter of the brother of the deceased's wife. She is unmarried.
In substance, the plaintiff's summons sought family provision relief. Although formal orders have yet to be made, the parties have advised the Court that the family provision claim has been settled (on terms not yet disclosed).
Before formal orders could be made on the summons the parties joined in inviting the Court to determine disputed questions of construction bearing upon the plaintiff's entitlements under the instruments admitted to probate.
As a procedural expedient (adopted at my suggestion), the questions for determination are defined by reference to claims for relief made by the plaintiff in a notice of motion filed by her on 4 July 2017.
The testamentary provisions the subject of controversy take the following form: 1. the plaintiff's disputed entitlements are a gift of "income from dividends received" on shares (codicil dated 31 August 2001, clause 1(C); codicil dated 27 October 2003, paragraph 1(D)) and an entitlement, to have "full use of" the deceased's residence, "for her personal use and enjoyment" (codicil dated 20 March 2003, clause 5(B)). 2. in the event of the death or marriage of the plaintiff: 1. any entitlement to "the dividends" and "title to the shares" the subject of the gift to the plaintiff of "income from dividends received" passes to the deceased's "executors… for their personal use and benefit" (codicil dated 31 August 2001, clause 1(C)); and 2. the plaintiff's entitlement to the deceased's residential property passes, in effect, to the third and fourth defendants (codicil dated 20 March 2003, clause 6, a provision revoked by the deceased but, in effect, reinstated as a result of a settlement agreement). 1. indirectly, the second defendant is the deceased's residuary beneficiary. That is because the deceased ultimately named the fifth defendant as his residuary beneficiary (clause 4 of the codicil dated 20 May 2010 comprising four clauses) and named the second defendant as beneficiary of all his shares in the fifth defendant (codicil dated 31 August 2001, clause 3(B)). 2. as the sixth defendant is and was at all material times wholly owned by the fifth defendant, the effect of the documentation admitted to probate is that, like the deceased did at the time of his death, the second defendant now owns and controls both the fifth and the six defendants. 3. nevertheless, the gift to the second defendant of the deceased's shares in the fifth defendant was expressed to be "subject to" the gift made to the plaintiff of "income from dividends received" on shares (codicil dated 31 August 2001, clauses 1(C) and 3). 4. the gift made to the plaintiff of "income from dividends received" on shares (codicil dated 31 August 2001, clause 1(C)) is capped at $500,000 "per annum" (codicil dated 27 October 2003, paragraph 1(D)).
These provisions give rise to the following problems: 1. a central problem with the gift to the plaintiff of "income on dividends received" on shares is that the deceased identified those shares as "my shares in the National Australia Bank Ltd and the Commonwealth Bank of Australia Ltd". Although he personally held shares in the National Australia Bank ("NAB") at the time of his death, the deceased never held Commonwealth Bank of Australia ("CBA") shares personally. At the time of his death, he and the sixth defendant both held NAB shares. The CBA shares under the deceased's ownership and control were owned by the sixth defendant. 2. a secondary problem with the gift to the plaintiff of "income on dividends received" on shares is the question whether that gift carried with it any "franking credits" which may, from time to time, attach to dividends paid or payable on shares. 3. a third, related problem with the gift to the plaintiff of "income on dividends received" on shares is whether the gift extends to bonus shares or other securities derived from, or being an accretion to, the shares referable to which the plaintiff has a gift of income. 4. another problem, common to both the gift of "income from dividends received" (codicil dated 31 August 2001, clause 1(C)) and the gift of "full use" of the deceased's residential property (codicil dated 20 March 2003, clause 5(B)), is whether, as the plaintiff alleges, a limitation on her entitlements defined by reference to her marriage is void as against public policy. 5. a separate, distinct problem is whether the deceased's gift referable to his residence constituted a gift of a life estate or merely a right of residence.
On the very cusp of my publication of reasons for judgment on all these questions, the plaintiff and the third and fourth defendants invited deferral of judgment on the last question - that is, consideration of the nature of the gift affecting the deceased's residence.
That invitation was based upon their achievement, in the shadow of judgment, of an "in principle" settlement of disputation between them, and a need (not likely to be satisfied in less than a fortnight) to engage the first and second defendants in further, consequential negotiations.
As an inducement to judgment on that part of the motion directly affecting herself and the third and fourth defendants (encapsulated in paragraph 9 of the motion) being deferred, counsel for the plaintiff expressly abandoned the plaintiff's public policy objection to a limitation on her gifts referable to marriage (an objection encapsulated in paragraph 10 of the motion).
The perceived necessity for that abandonment arose from the fact that the public policy objection was taken by the plaintiff in relation to each of the gifts made to her, and the first and second defendants pressed the Court for immediate publication of reasons for judgment directed to the deceased's gift of "dividend income" to the plaintiff.
The plaintiff having abandoned paragraph 10 of her motion, I am able, by these reasons, to give judgment on the "dividend income" gift whilst, at the same time acceding to the request of the plaintiff and the third and fourth defendants that I defer judgment on paragraph 9 of the motion in order to facilitate ongoing settlement negotiations limited to questions uniquely referable to that paragraph.
A defence raised by the defendants, to some (but not all) of the contentions advanced by the plaintiff in relation to the gift of income, is whether the plaintiff is estopped from advancing those contentions because, before the proceedings were referred to mediation I endeavoured, in case management of the proceedings, to have all parties articulate all claims on the estate of the deceased; the defendants contend that the disputed contentions were not advanced before the mediation; the first and second defendants contend that they agreed to settlement of claims on the estate of the deceased upon an assumption that the plaintiff had before mediation articulated all her claims; and, the defendants contend, the plaintiff is thereby estopped from belatedly asserting the disputed contentions.
The defendants' estoppel defence has no practical bearing on the outcome of the parties' contest. That is because: (a) the defence fails at a factual level insofar as, on my assessment of the second defendant's oral evidence, the first defendant and he did not rely on any perceived pre-mediation limitation on the plaintiff's case in making decisions about whether, and what claims against the deceased's estate, to settle; (b) the estoppel defence is directed to formal claims by the plaintiff to have NAB and CBA shares transferred out of the ownership of the sixth defendant, claims not ultimately pressed by the plaintiff on the hearing of her motion; and (c) during the course of the hearing on the motion, the defendants disclaimed reliance upon an estoppel defence to the plaintiff's principal claim that, having accepted the deceased's gift of ownership of the fifth and sixth defendants "subject to" the deceased's gift of dividend income to the plaintiff, the second defendant is, in equity, personally bound to give effect to the gift in favour of the plaintiff.
The equitable principle upon which the second defendant is said to be bound to honour the deceased's gift of "dividend income" in favour of the plaintiff was articulated by the Court of Appeal (constituted by Handley, Sheller and Cripps JJA) in Williams v Legg (unreported, 16 March 1993), at pages 9-10, in the following terms (with emphasis added): "It is well established that the donee of an option conferred by a will to purchase property in the estate by electing to take the property upon the terms indicated by the will incurs an equitable duty to perform the conditions upon which, under the provisions of the will, the donee becomes entitled to the property; see O'Neill v O'Connell (1946) 72 CLR 101 at 120. Similarly, when provision is made by way of gift, whether testamentary or inter vivos, directing a payment to one person and expressing a purpose beneficial to another, if the purpose is stated as a condition upon and subject to which the person takes the gift beneficially, the donee by accepting it incurs an equitable duty to perform the condition which is annexed to the gift; Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 418-9. The acceptance of a gift so conditioned gives rise to a personal equitable obligation analogous to a contractual obligation enforceable by injunction, specific performance, or an award of compensation as appropriate; compare Dawson J in Muschinski v Dodds (1985) 160 CLR 583 at 624-5, and see generally Messenger v Andrews (1828) 2 Russ 478; 38 ER 885".
The second defendant did not mightily resist a finding - which, in my opinion, should be made - that, having accepted the deceased's gift of the fifth defendant (codicil dated 31 August 2001, clause 3(B)), "subject to" the gift to the plaintiff of "income from dividends received" (codicil dated 31 August 2001, clause 1(C)), he is personally bound, in equity, to give effect to the intention of the deceased in making that gift to the plaintiff. Substantial disputation was confined to argument about: (a) the ambit of the intention of the deceased in making the gift in favour of the plaintiff; and (b) whether and, if so, to what extent the second defendant's obligation should be enforced by consequential injunctive relief.
Consideration of the deceased's testamentary intention requires five preliminary points to be noticed: 1. First, there is no dispute about the principles of construction to be applied. They are conveniently summarised by Hallen J in Warton v Yeo [2014] NSWSC 494 at [48]-[54] in terms that include reference to Fell v Fell (1922) 31 CLR 268 at 273-275; Perpetual Trustee Co Limited v Wright (1987) 9 NSWLR 18 at 33; and the Succession Act, section 32. 2. Secondly, there is no dispute that the "armchair principle" applies; in construing a will, the Court is entitled to put itself in the position of the testator and to consider the material facts and circumstances known to the testator with reference to which he is taken to have used the words in the will. 3. Thirdly, the parties agree that section 32 of the Succession Act applies (in authorising use of extrinsic evidence in the construction of an ambiguous will), notwithstanding that it came into operation only on 1 March 2008, because the codicils of the deceased after that date republished the deceased's earlier-made will and codicils. 4. Fourthly, a will takes effect, with respect to the property disposed of by the will, as if it had been executed immediately before the death of the testator, unless a contrary intention appears in the will: Succession Act, section 30. 5. Fifthly, although the plaintiff's motion seeks an order under section 27(3) of the Succession Act for an extension of time within which to apply for an order that clause 1(C) of the codicil dated 31 August 2001 be rectified "in such a manner as to require the first and second defendants to do all things necessary to vest in the first and second defendants the NAB shares and CBA shares held by the sixth defendant as at the date of the deceased's death and to make available for distribution to the plaintiff the dividends on those shares", that case was not ultimately pressed by the plaintiff. In the ultimate, the plaintiff focussed her attention on the second defendant's personal equitable obligation arising from his acceptance of the deceased's conditional gift to him of the fifth defendant and, implicitly, its wholly owned subsidiary, the sixth defendant.
Insofar as the deceased's will and codicils manifest a "scheme" for dealing with his estate, it is limited to an intention that ownership and control of the fifth and sixth defendants continue under the stewardship of the second defendant, to whom (in consultation with the first defendant as co-executor), he confided the task of management of disparate provisions for the benefit of a broad range of persons for whom the deceased sought to make provision.
Recognition of that scheme militates against the plaintiff's case, not ultimately pressed, that the NAB and CBA shares be transferred to the first and second defendants so as to give effect to the deceased's gift of "dividend income" to the plaintiff. In my opinion, the deceased's testamentary intention was that the business of the fifth and sixth defendants be preserved, indefinitely, under the stewardship of the second defendant or, if the second defendant predeceased him, Christopher. He did not intend that the companies which bear his name be divested of property to give effect to his testamentary intentions. In clause 3 of his codicil dated 3 April 2014 he expressly "declared and confirmed" that "all the specific gifts & bequests of sums of money previously given in my will & Codicils be made from any surplus net income from my residuary estate & not from the sale of shares or other assets".
The deceased's testamentary scheme also conforms to, and is reinforced by, the objective reality that, before his death the deceased increasingly entrusted management of his affairs to the second defendant as a trusted, discreet deputy.
Recognition of the deceased's testamentary scheme does not otherwise greatly assist resolution of disputation about the plaintiff's entitlements to "dividend income". The provisions governing those entitlements are essentially idiosyncratic products of a lay imagination vaguely familiar with the use of legal language.
In his evidentiary exposition of the disputed gifts in favour of the plaintiff, the second defendant deposed to conversations he said he had with the deceased contemporaneously with execution of the codicils in which they appear. Although I accept that the second defendant prepared his affidavits, and gave evidence in cross examination, with honesty of purpose and a conscientious respect for the deceased's intentions, I place no weight on his evidence of long ago conversations. Close though his business relationship with the deceased was, he was not an intimate friend of the deceased and, when he prepared testamentary documents for the deceased, in accordance with the deceased's dictation, he deliberately confined himself to reproduction of the dictated word. The written form of the deceased's testamentary intentions is the safest expression of those intentions.

THE DECEASED'S GIFT OF "INCOME FROM DIVIDENDS RECEIVED" ON SHARES

Clause 1(C) of the deceased's codicil dated 31 August 2001 and (as he described it), paragraph 1(D) of his codicil dated 27 October 2003 together read as follows: "1. I, GIVE AND BEQUEATH TO PETA VICTORIA ROBERTS OF … TASMANIA, THE FOLLOWING:-… (C) DURING THE TERM OF HER LIFETIME, I BEQUEATH ALL THE INCOME FROM DIVIDENDS RECEIVED ON MY SHARES IN THE NATIONAL AUSTRALIA BANK LTD AND THE COMMONWEALTH BANK OF AUSTRALIA LTD TO ACCRUE TO AND BE PAID TO HER, FOR HER PERSONAL USE AND BENEFIT, AND IN THE EVENT OF HER DEATH OR MARRIAGE, THE SAID DIVIDENDS AND THE TITLE OF THE SHARES SHALL THEN TRANSFER TO AND BE HELD BY THE EXECUTORS OF MY ESTATE FOR THEIR PERSONAL USE & BENEFIT… (D) IN RESPECT OF MY BEQUEST TO PETA VICTORIA ROBERTS IN THE PREVIOUS PARAGRAPH 1(C) OF THE CODICIL [DATED 31 AUGUST 2001], I NOW AMEND THAT BEQUEST, SO THAT THE MAXIMUM INCOME TO BE RECEIVED BY HER IN RESPECT OF THE INCOME FROM DIVIDENDS IN THAT PARAGRAPH IS TO BE FIVE HUNDRED THOUSAND DOLLARS ($500,000) PER ANNUM. ALL ADDITIONAL DIVIDEND INCOME IN EXCESS OF $500,000 PER ANNUM SHALL BE PAID TO MY ESTATE DURING THE TERM OF HER LIFETIME."
It is not necessary, in construing the gift to the plaintiff in the first limb of clause 1(C), to explore the meaning of the gift over in the second limb of the clause absent disagreement between the first and second defendants as to its operation. The reference in the second limb to a "transfer" of "the title" of shares must, in any event, be read in the context of clause 3 of the deceased's codicil dated 3 April 2014, to which reference has been made as confirmation of the scheme underlying the deceased's testamentary instruments as a whole. The deceased "declared and confirmed" that "all the specific gifts and bequests of money" made by him are to be made from his residuary estate and not from the sale of shares or other assets.
In the context of their review of the deceased's income tax returns, the deceased and the second defendant were accustomed to recognising a distinction between dividend income received and an allowance of "franking credits", a form of "statutory income" by virtue of the Income Tax Assessment Act 1997 Cth, section 207.20. However, I doubt the reliability of the second defendant's evidence of a contemporaneous conversation with the deceased that attributes to the deceased an intention to include in the expression "income from dividends received" imputed income attributable to franking credits.
At the times the deceased executed his codicils of 31 August 2001 and 27 October 2003, and subsequently, the deceased was aware of the state of his and his companies' ownership of shares. He knew that he held CBA shares only through the sixth defendant, not personally.
In my opinion, his reference in clause 1(C) to "my shares" was intended by him to be a reference to whatever shares were under his ownership and control at the time of his death, be they held by him personally or by the fifth or sixth defendants.
That conclusion is reinforced by the imposition, in clause 1(D) of a maximum entitlement of $500,000 per annum. There was a perceived need of such a cap because, uncapped, dividend income received via the sixth defendant (in addition to that received via the deceased personally) was likely to exceed that amount.
In making a gift referable to "my shares" in CBA, the deceased knew that the only shares ever answerable to that description were shares registered in the name of the sixth defendant, a company owned and controlled by him through his ownership and control of the fifth defendant. The gift spoke at the time of the deceased's death; but it must be taken as having represented his settled intention, having survived a decade of subsequent codicils, each implicitly confirming the gift.
In my opinion, references in clauses 1(C) and 1(D) to "income... received" are references to dividends actually received, and do not extend to franking credits. Although, by virtue of Commonwealth legislation, franking credits might be viewed for taxation purposes as attached to dividends, the concept of franking credits does not sit comfortably with the deceased's reference to "income… received". The fact that he was aware of "franking credits" in a taxation context, but made no reference to them in his codicil, if at all relevant, supports a conclusion that, in gifting the plaintiff "income from dividends received", the deceased did not confer upon her the benefit of franking credits.
In my opinion, the $500,000 per annum cap on the gift of "income from dividends received" to the plaintiff operates year-by-year commencing on the date of the deceased's death. During each year bounded by the anniversary of the deceased's death the plaintiff is entitled to a "maximum income" of $500,000.
In its true character, the gift to the plaintiff is an amount calculated as the equivalent of income on dividends received (as and when received) by the holder of the shares under the ownership and control of the deceased at the time of his death. That construction of clause 1(C) is consistent with construction of the clause as extending to shares not held by the deceased personally. It is also consistent with the terminology of clause 1(D), which distinguishes between "income to be received by [the plaintiff] in respect of the income from dividends" referred to in clause 1(C).
Although it is no longer necessary for me to deal with the public policy question raised by paragraph 10 of the plaintiff's motion (that paragraph having been expressly abandoned), the nature of the question - involving, as it does, consideration of the public interest - justifies, if not demands, confirmation that, in my opinion, there is no rule of public policy that operates to void the limitation of the gift to the plaintiff in the event of her marriage: Sciacca v Ghidella, Reghenzani [2001] QSC 134 at [17]. In Gill v Gill (1921) 21 SR (NSW) 400 (a case cited with approval by Dawson J in Muschinski v Dodds (1985) 160 CLR 583 at 624-625) Harvey J upheld a personal equitable obligation of a beneficiary of a conditional testamentary gift to provide for his sister so long as she remained unmarried.
In Jones v Krawczyk [2011] NSWSC 139, conscious of Ramsay Trustees Executors and Agency Co. Ltd (1948) 77 CLR 321, White J underlined the continuing applicability of a rule of public policy protective of an existing marriage. However, in the present case, there is nothing in the deceased's gift to the plaintiff which is aimed at inducing divorce or separation, or otherwise eroding the sanctity of an existing marriage. In those circumstances, in my opinion, there is no public policy operative so as to void the condition subsequent on the gift of income defined by reference to marriage.
There is no dispute between the parties that references in the deceased's codicil to NAB and CBA shares should be taken as including bonus shares or other securities derived from, or bearing the character of an accretion to, NAB and CBA shares forming part of the deceased's estate. A formal notation to that effect was made by the Court on 2 May 2018 in connection with an issue of shares consequent upon a merger of a subsidiary company with NAB in the United Kingdom. It was accepted by the defendants that a determination of disputed questions about the deceased's NAB shares would carry with it those incidental shares.
The formal notation made by the Court was in the following terms: "[2] Note that it is agreed between the parties that, in the events that have occurred, references in the will and codicils of the late Peter Malcolm Reid to shares in the National Australia Bank Ltd should be read to include shares in both National Australia Bank Ltd and CYBG PLC. [3] Note that the parties agree that, following a determination of the current proceedings, there should be reserved to the plaintiff liberty to apply for such further orders as she may be advised regarding any shares, bonus shares or securities derived from the National Australia Bank, Commonwealth Bank or CYBG PLC shares forming part of the estate of the late Peter Malcolm Reid (or held by the sixth defendant) or other accretion to those shares".
In formulating the relief to be granted to the plaintiff in relation to clause 1(C) of the codicil dated 31 August 2001 and paragraph 1(D) of the codicil dated 27 October 2003, read with clause 3(B) of the codicil dated 31 August 2001 in light of the second defendant's acceptance of the conditional gift of the deceased's shares in the fifth defendant contained in clause 3(B), it is important to notice the nature of the case made out by the plaintiff.
The plaintiff made out her case by reference to the Court of Appeal's observations in Williams v Legg extracted above.
Those observations contain a primary reference to the judgment of Dixon J in Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 418-419. In that judgment, his Honour distinguished four classes of gift, as appears in the following, edited extract: "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. … (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 donee 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. (1873) LR 6 HL 1 at 19; Messenger v Andrews (1828) 4 Russ 478; 38 ER 885). (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…. (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 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. …"
The Court of Appeal's reference to a "personal" equitable obligation makes plain its reference to the second (not the third) of Dixon J's four types of gift. The plaintiff's case is that, having accepted the deceased's conditional gift, the second defendant is bound by a personal equity falling short of a charge on property.
That this is so can be confirmed by reference to the cases cited by Dawson J, in Muschinski v Dodds (1985) 160 CLR 583 at 624-625, implicitly adopted by the Court of Appeal in addition to its explicit reference to Messenger v Andrews: Gregg v Coates (1856) 23 Beav 33; 53 ER 13, Rees v Engelback (1871) LR 12 Eq 225, Gill v Gill (1921) 21 SR (NSW) 400, In re Hodge; Hodge v Griffiths [1940] Ch 260 and Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 418-420.
Those cases suggest (as confirmed by Dawson J's recognition of the availability of an award of compensation or an order for specific performance as an appropriate remedy) that a personal equity arising from acceptance of a conditional gift is analogous to a contract to perform an obligation in consideration of the testamentary gift.
The relief claimed by the plaintiff goes beyond what is appropriate to the case she has made out.
The consequential relief she seeks, in addition to a declaration defining the ambit of the second defendant's obligation, is a pair of injunctions (directed not only to the second defendant personally, but also against the first and second defendants in their capacity as the deceased's executors, and against the fifth and sixth defendants as the holders of shares upon which dividends can be expected to be paid): 1. restraining them from taking any action to encumber, sell, transfer, dispose of or otherwise deal with shares affected by the gift to her, or doing any act other than to ensure payment to the plaintiff of the moneys the subject of the deceased's gift to her; and 2. directing them to take all necessary steps to ensure that the plaintiff is paid those moneys.
The case made out by the plaintiff looks to enforcement of the second defendant's personal obligation rather than a remedy against the deceased's executors or the companies to which are likely to be paid dividends which provide a measure of the deceased's gift to the plaintiff. Whether or not the deceased's executors should be joined in any enforcement proceedings against the second defendant personally may be a moot point: compare Rees v Engelback (1871) LR 12 Eq 225 at 238 and Gill v Gill (1921) 21 SR (NSW) 400 at 406. Whether or not they be necessary parties, the deceased's executors (the first and second defendants in their representative capacity) are a party to these proceedings.
The defendants contend, and I agree, that the relief to which the plaintiff is presently entitled is appropriately limited to a declaration defining the ambit of the second defendant's obligation and an order that he specifically perform that obligation. Should he refuse to carry out his obligation, or be disabled from doing so, the plaintiff might be awarded compensation as an alternative means of enforcing the obligation.

At a glance

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Judgment (7 paragraphs)

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Cases Cited (9)

Cited By (2)