First Plaintiff v Defendant

2 The deceased died on 24 March 2007 leaving a will dated 21 August 2003 ('the will'). Probate of the will was granted to the defendant on 5 June 2007.

3 Pursuant to his will, the deceased provided as follows:

c) $20,000 to the deceased's sons, Mark and Nicholas, who survive him and attain the age of 21 years; and

d) The residuary estate to such of Mark and Nicholas as survive him and attain the age of 40 years and 36 years respectively with a gift over to the deceased's grandchildren who survive him and attain 35 years.

4 The deceased was survived by his two sons and neither of them had any children. At the date of hearing, Mark (born on 9 August 1987) was 24 years of age and Nicholas (born 29 November 1991) was 20 years of age.

5 The deceased's estate comprised a small amount of cash and the deceased's home. After payment of debts and expenses and allowing for the legacies, the residue of the estate is now approximately $450,566 less ongoing administration expenses, taxation, legal fees and property related expenses.

The First Question for Determination - Clause 4 of the Will

6 The first question is whether, upon the true construction of cl 4 of the will (and upon each of the plaintiffs' attaining the age of 18 years), the residuary estate vested in each of the plaintiffs absolutely.

AFTER paying my debts funeral and testamentary expenses and all probate and estate and other duties payable by my estate (whether actual or notional) to any State or Federal Authority in consequence of my death I GIVE the residue of my estate to such of them my said sons MARK KRSTIC and NICHOLAS KRSTIC as survive me and attain the age of forty (40) years and thirty-six (36) years respectively absolutely and if both then equally PROVIDED HOWEVER if either of my said sons should predecease me or fail to attain a vested interest leaving a child or children who survive me and attain the age of 35 years then such child or children will take and if more than one then equally the share which his her or their father would have taken had he attained a vested interest.

The Second Question for Determination - Clause 3(c) of the Will

8 The second question[2] is whether, upon the true construction of cl 3(c) of the will, and upon Nicholas's attaining the age of 18 years, he became absolutely entitled to the sum of $20,000 adjusted according to the Consumer Price Index as referred to therein.

I GIVE the ... sum of TWENTY THOUSAND DOLLARS ($20,000.00) as the Consumer Price Index for the weighted average of the eight capital cities for all groups or the index which is substituted for it current as at the date of my death bears to that index at the date of my death to each of them my sons MARK KRSTIC and NICHOLAS KRSTIC as survive me and attain the age of 21 years severally and absolutely.

10 The determination of the two questions requires consideration of the principles relating to the construction of wills and the rule in Saunders v Vautier.[3]

11 Counsel for the plaintiffs provided detailed written submissions on the general principles applicable to the construction of wills, which submissions were accepted by counsel for the defendant.[4] A detailed and succinct summary of the principles is set out in Fell v Fell.[5] Prima facie, the written words in the will must be given their ordinary meaning, with the Court making a determination of the issue by reference to the words used by the testator in the will, having regard to any established rules of construction and construing a 'will as trained legal minds would do'.[6]

12 As stated by Fullagar J in ANZ Executors & Trustee Co Ltd v McNab:

The search for testamentary intention must be a search for intention disclosed by the words used, and in this search words must prima facie be given their ordinary meanings and, if the law has consistently given a particular meaning to some word or phrase, that is the meaning which the word or phrase must prima facie be given. Nevertheless, the intention is to be gathered from a study of the will as a whole, and in the light of any relevant and admissible evidence of surrounding circumstances.[7]

13 The modern formulation of the rule in Saunders v Vautier is set out in CPT Custodian v Commissioner of State Revenue as follows:

Under the rule in Saunders v Vautier, an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation.[8]

14 The basis of the rule has been explained as follows:

It has been said that the principle upon which the rule is based is that any restriction on the enjoyment by a beneficiary who is sui juris of a vested interest is inconsistent with the nature of that interest and must be disregarded. Thus understood, the principle often will involve the denial of the intentions of the settlor or testator ...[9]

15 The rule in Saunders v Vautier operates to override a testator's intention to prevent the beneficiaries from taking their shares until reaching an age beyond majority.[10] The rule has no operation unless all the persons who have any present or contingent interest in the property are ascertained, sui juris and consent.[11] In those circumstances, the beneficiaries may put an end to the trust by directing the trustee to transfer the interest in the estate to themselves, notwithstanding any direction to the contrary in the trust instrument.[12] The rule also applies 'where there is more than one beneficiary, even although their several interests are not all immediate but successive, provided they are unanimous in wishing to end the trust'.[13] An example where the rule could not apply for this reason is the House of Lords decision of Berry v Geen.[14] In that case, the Court refused to sanction the distribution of a fund held on trust for accumulation and payment of certain annuities, where it was possible that the accumulation might fail. Because, in those circumstances, the surplus income would be undisposed of and pass on an intestacy, a contingent interest was held by the next of kin. The Court held that it could not make the orders sought without the consent of the next of kin because to do so would or might destroy or prejudice their interests.

Submissions on the Construction of Clause 4 of the Will

16 Counsel for the plaintiffs submitted that, as Mark and Nicholas survived the deceased[15] and there were no grandchildren who survived the deceased, they did not have to wait until they attained the ages of 40 and 36 years respectively to receive the residuary estate of the deceased.

17 In support of this submission, counsel relied on a combination of the construction of cl 4 and the intestacy provisions contained in Part IV of the Administration and Probate Act 1958 to demonstrate that Mark and Nicholas were now absolutely entitled to the deceased's residuary estate.

18 Counsel for the plaintiffs accepted that the gifts to Mark and Nicholas were contingent on each of them attaining the ages of 40 and 36 years respectively. Counsel submitted that the operation of cl 4 needs to be considered from the perspective of what would happen if both Mark and Nicholas failed to attain the respective ages of 40 and 36 years.[16] In that circumstance, the will provides that the persons who would take are the children of Mark and Nicholas. However, in order to take under the clause, the children must be alive at the date of death of the deceased, so that they 'survive' him, and they also must attain the age of 35 years.

19 Counsel submitted that the ordinary or natural meaning of the word 'survive' applied to cl 4 - meaning 'outlive', that is, being alive before, and after, the testator.[17] Counsel for the defendant accepted that, in construing the 'gift over' provision,[18] a court might find there was nothing in the will that indicated that the deceased intended to give the word 'survive' in cl 4 anything other than its ordinary dictionary meaning.[19]

20 As the deceased was not survived by any grandchildren, the gift over provision to the deceased's grandchildren in cl 4 can never take effect. This means that what is left is a gift of the residue of the estate to Mark and Nicholas if they attain the ages of 40 and 36 years respectively.

21 Counsel for the plaintiffs assured the Court that Mark and Nicholas, being sui juris, agree that the estate is to be shared equally between them notwithstanding that one might die before the respective ages referred to in cl 4 of the will.[20] If either Mark or Nicholas fails to attain the age of 40 or 36 years respectively, there will be an intestacy as to his share of the residuary estate. For the purposes of the intestacy provisions,[21] the only persons who are the deceased's next of kin are Mark and Nicholas and, in these circumstances, the deceased's residuary estate passes to the estates of Mark and Nicholas.

22 Counsel submitted that, because there is no one else who could possibly take the deceased's residuary estate, Mark and Nicholas are, in fact, now absolutely entitled to the whole of the deceased's residuary estate and, between them, Mark and Nicholas have absolute, vested and indefeasible interests in the residuary estate. In these circumstances, counsel submitted that the rule in Saunders v Vautier applies and Mark and Nicholas may at any time require the transfer of the residuary estate to themselves and may terminate any accumulations.

23 Counsel for the defendant rejected the plaintiffs' submissions and submitted that, under cl 4 of the will, the plaintiffs' interests in the residuary estate were not vested and absolute interests but were contingent interests until they met their age qualifications.

24 Counsel submitted that the rule in Saunders v Vautier only has application where the beneficiary or beneficiaries are sui juris and are given an absolute indefeasible interest in the corpus of the testamentary gift or trust,[22] which is not the case in cl 4 of the will.

25 Counsel for the defendant contrasted the gift referred to in Saunders v Vautier with the gift to Mark and Nicholas in cl 4. In Saunders v Vautier, the testator gave certain stock to his trustees 'upon trust to accumulate the interest and dividends which should accrue due thereon until [the legatee] should attain his age of 25 years'[23] and then pay the stock together with accumulated interest and dividends to the legatee absolutely. It was determined that the gift created an immediate vested interest but postponed its enjoyment, that is, the attaining of the age of 25 years denoted the timing of the enjoyment of the gift, not a condition of receiving the gift. If the legatee died before attaining the age of 25 years, the gift would pass to his estate because the gift vested in the legatee at the date of death of the testator.

26 Counsel for the defendant submitted that, in contrast to Saunders v Vautier, cl 4 of the will of the deceased does not give Mark and Nicholas an absolute vested and indefeasible interest in the residue of the estate. Counsel submitted that the phrase 'as survive me and attain' the respective ages in cl 4 is a pre-condition or a quality that Mark and Nicholas must possess before they attain a vested interest in the residuary estate.

27 Counsel also submitted that the gift over provision to the deceased's grandchildren supports the deceased's intention that the plaintiffs' interests in the residuary estate remain contingent until they attain their age qualifications. The fact that the gift over to the grandchildren fails does not improve the plaintiffs' interests in the residuary estate because their interests remain contingent.

28 Further, counsel submitted that cl 5 of the will demonstrates that the deceased did not intend to give a vested interest in the residuary estate to the plaintiffs prior to their attaining their age qualifications.

I EMPOWER my Trustee to use the whole or any part of the capital and income of the share in my estate to which any person is presumptively entitled for maintenance and educational purposes only and benefit of that person until he or she attains a vested interest such use to be in the absolute discretion of my Trustee.

30 Counsel for the defendant submitted that the plaintiffs cannot avail themselves of the principle that an otherwise contingent interest in a testamentary gift may be construed as a vested interest if the will provides a gift of, or a direction to pay, the whole of the income of the gift to the beneficiary[24] because cl 5 of the will merely empowers the defendant, at its absolute discretion, to use the whole or any part of the income or capital to which any 'person is presumptively entitled for maintenance and educational purposes only and benefit of that person until he or she attains a vested interest'. Because this is a discretionary power given to the defendant to be applied by it towards any person with a presumptive entitlement under the will until that person reaches the age qualification applicable to that person, it confirms the deceased's intention that the plaintiffs' interest in the residuary estate vests only on their attaining their age qualifications.

31 In response to the plaintiffs' submissions on the position if both Mark and Nicholas failed to attain their age qualification and the consequent application of the intestacy provisions, counsel for the defendant submitted that the intestacy provisions only apply to the gift of the residuary estate if it is accepted that the interests of Mark and Nicholas are contingent. In those circumstances, counsel agreed that their interests in the residuary estate would pass to the estates of Mark and Nicholas.

32 Counsel submitted that if Mark and Nicholas held a vested interest, they would already have the residuary estate and so the intestacy rules would not apply. Counsel submitted that the fact that the end result is the same, in practical terms, should not deny the testator the right to make his will in the way that pleased him, that is, that Mark and Nicholas were to attain the age requirements set out in the will before they could take their interests.

33 I find that the intentions of the deceased, as disclosed by the words of his will, are as follows:

(a) His primary intention was to benefit his immediate family, being Mark and Nicholas. The legacies to his sons; the gift of the residue of the estate to his sons; the discretionary powers for the benefit of his sons in cl 5; and cls 6 and 7 all support this conclusion. All of these clauses express an intention on the part of the deceased to benefit his sons. Clause 6 expresses the deceased's wishes in respect of the payment of his sons' education by the estate and cl 7 gives the trustee a discretionary power to invest so as to be able 'to provide the maximum benefit to [the deceased's] sons'.

(b) He intended that the sons should receive their interests in both the legacies and the residuary estate when they attained the specified age requirements set out in cls 3(c) and 4 of the will.

(c) He intended that the gifts in cls 3(c) and 4 of the will be contingent upon Mark and Nicholas's attaining the age requirements set out in those clauses.

(d) In respect of cl 4 of the will, he intended that, if one of the sons did not attain the specified age requirement, the surviving son would be entitled to the whole of the residue of the estate.

34 In relation to the finding in (d) above, counsel for the plaintiffs informed the Court that Mark and Nicholas are in agreement that the estate is to be shared equally between them,[25] so that, if one of them does not attain the age requirement, that person's share will be given to the estate of that deceased person.

35 The meaning of the word 'survive' in the gift over provision in cl 4 is relevant to the analysis of the question for determination. In my view, the analysis of the authorities provided by counsel for the plaintiff on this issue supports his submission that the meaning of the word 'survive' should be given its ordinary or natural meaning of 'outlive'. As stated,[26] counsel for the defendant, in effect, accepted this submission. As no grandchildren of the deceased survived the deceased, the gift over provision to the deceased's grandchildren can never take effect.

36 The result of applying the ordinary and usual meaning of 'survive' in the gift over provision is that, if Mark and Nicholas fail to attain the age requirements of 40 and 36 years respectively, the residue of the estate would be undisposed of and would pass on an intestacy. The only persons who can take an interest in the deceased's residuary estate are the estates of Mark and Nicholas. This means that between them Mark and Nicholas are the only persons who could possibly have an interest in the residuary estate, whether contingent or vested. Because Mark and Nicholas are the only persons who between them have an interest in the residuary estate, are sui juris and consent,[27] in my view, they can require the transfer of the residuary estate and any accumulations to themselves by reason of the application of the rule in Saunders v Vautier.

37 This conclusion means that the intentions of the deceased are overridden. The application of the rule in Saunders v Vautier necessarily competes with giving effect to a testator's intentions. This is because vesting of an estate will not be withheld where a person is entitled to it.[28] As was stated by Debelle AJ in Koompahtoo v Local Aboriginal Land Council v KLALC Property & Investment Pty Ltd, 'the rule in Saunders v Vautier operates even where the termination of the Trust will defeat the intention of the Trust ...'.[29] In this case, the intention overriden is that the gift under cl 4 be contingent upon the relevant age requirements.

38 In my view, the rule in Saunders v Vautier also applies to the legacy to Nicholas contained in cl 3(c) of the will. The legacy was given to Nicholas absolutely provided he survive the deceased and attain the age of 21 years. If Nicholas fails to attain the age requirement, the gift will fail and fall to be distributed as part of the residue of the estate.

39 As stated,[30] counsel for the plaintiff informed the Court that Mark and Nicholas agreed that the estate is to be shared equally between them. Mark has already received his legacy under cl 3(c), so the consequence of their agreement is that, if Nicholas fails to attain the age of 21 years, the estate of Nicholas will be entitled absolutely to the legacy.

40 In these circumstances, Nicholas is the only person who has any present or contingent interest in the legacy estate, is sui juris and consents. Accordingly, applying the rule in Saunders v Vautier, Nicholas may at any time require the transfer of the legacy and any accumulations to himself.

41 I set out my answers to the questions in the plaintiffs' amended originating motion:

In the events that have happened, and on the true construction of cl 4 of the will, upon each of the plaintiffs' attaining the age of 18 years, did the deceased's residuary estate vest in each of them absolutely?

If yes to question 1, shall the defendant, after payment of the deceased's lawful funeral, testamentary and administration expenses, pay the deceased's residuary estate equally between the plaintiffs?

If no to question 1, in the events that have happened, and on the true construction of cl 4 of the will, when does the deceased's residuary estate vest absolutely in each of the plaintiffs?

In the events that have happened, and on the true construction of cl 3(c) of the will, upon Nicholas Krstic's attaining the age of 18 years, did he become absolutely entitled to the sum of $20,000 adjusted according to the Consumer Price Index as referred to therein?

If yes to question 4, shall the defendant pay the sum of $20,000 adjusted according to the Consumer Price Index to Nicholas Krstic?

36. Accordingly, I will make the orders sought in questions 2 and 5 and hear the parties as to the form of the order and costs.

[1] A foreshadowed claim by Fiona Garraway alleging a domestic relationship with the deceased during his lifetime was settled and funded from the deceased's superannuation fund.

[2] At the conclusion of the hearing, the originating motion was amended by agreement to include the determination of the further question in relation to cl 3(c) of the will.

[3] [1841] EngR 629; (1841) 4 Beav 115; 49 ER 282; affd [1841] EngR 765; (1841) Cr & Ph 240; 41 ER 482 ('Saunders v Vautier').

[4] Transcript of Proceedings, Krstic v State Trustees Ltd (Supreme Court of Victoria, McMillan J, 19 June 2012) 10. See paragraphs 6 and 7 of the plaintiffs' submissions.

[5] [1922] HCA 55; (1922) 31 CLR 268. See also Perrin v Morgan [1943] AC 399; ANZ Executors & Trustee Co Ltd v McNab [1999] 3 VR 666.

[6] Fell v Fell [1922] HCA 55; (1922) 31 CLR 268, 273, quoting Ralph v Carrick (1879) 11 Ch D 873, 878 (Cotton LJ).

[7] [1999] 3 VR 666, 667.

[8] [2005] HCA 53; (2005) 224 CLR 98, 119 [47] (citations omitted), quoting with approval the rule as set out in Geraint Thomas, Thomas on Powers (Sweet & Maxwell , 1st ed, 1998) 176.

[9] R P Meagher and W M C Gummow, Jacobs' Law of Trusts in Australia (Butterworths, 6th edition, 1997) 700 [2314].

[10] Quinton v Proctor [1998] 4 VR 469, 471. See also Trustees of Estate Mortgage Fighting Fund Trust v Commissioner of Taxation [2000] FCA 981; (2000) 102 FCR 15, 31-2; Koompahtoo v Local Aboriginal Land Council v KLALC Property & Investment Pty Ltd [2009] NSWSC 502, [35]-[41].

[11] R P Meagher and W M C Gummow, Jacobs' Law of Trusts in Australia (Butterworths, 6th edition, 1997) 698 [2312].

[14] [1938] AC 575.

[15] They were aged 19 and 16 years respectively at the date of death of the deceased on 24 March 2007.

[16] See paragraph 8(b) of the plaintiffs' submissions.

[17] Brennan v Permanent Trustee Co of NSW Ltd [1945] HCA 17; (1945) 73 CLR 404, 409 (Rich J), 412 (Starke J), 414 (Dixon J); Wilson v Harris (1964) 65 SR (NSW) 329, 332-5 (Walsh J), 336-7 (Hardie J), 338 (Asprey J); Re Andrews [1985] 2 Qd R 161, 162; Corda v Davey [2000] VSC 27, [15]; ANZ Executors and Trustee Co Ltd v Hicks [2000] VSC 288, [18]; Napper v Miller [2003] NSWSC 376, [8] The English authorities are to the same effect. See, eg, Re Castle; Public Trustee v Floud [1949] Ch 46, 48; Re James's Will Trusts [1962] Ch 226, 234; Re Allsop [1968] 1 Ch 39, 45-6 (Lord Denning MR), 48 (Russell LJ), 50-1 (Davies LJ).

[18] In Re Lee; Perpetual Trustee Co (Canberra) Ltd v Rasker (1986) 84 FLR 268, 271, Miles CJ stated: '"Gift over" is not a term that appears in all the standard legal dictionaries and reference works. It is defined in Walker, Oxford Companion to Law (1980) thus: "A gift to one in succession to a prior gift to another on a certain contingency, eg to A if he attains 21, whom failing to B."'

[19] See paragraph 29 of the defendant's submissions.

[20] Transcript of Proceedings, Krstic v State Trustees Ltd (Supreme Court of Victoria, McMillan J, 19 June 2012) 4.

[21] Administration and Probate Act 1958 (Vic) ss 51-2.

[22] Melbourne Jewish Orphan & Children's Aid Society Inc v ANZ Executors & Trustee Co Ltd [2007] VSC 26, [36].

[23] Saunders v Vautier [1841] EngR 629; (1841) 4 Beav 115, 115; [1841] EngR 629; 49 ER 282, 282.

[24] Re Benjamin; Mason v Benjamin [1926] VicLawRp 55; [1926] VLR 378, 389, 391; Fox v Fox (1875) LR 19 Eq 286, 291.

[25] See above paragraph 21.

[26] See above paragraph 19.

[27] Berry v Geen [1938] AC 575, 582.

[28] Re Lee; Perpetual Trustee Co (Canberra) Ltd v Rasker (1986) 84 FLR 268, 271.

[29] [2009] NSWSC 502, [35]-[41].

[30] See above paragraph 21.