Lutheran Church of Australia South Australian District Inc v Farmers' Co-operative Executors & Trustees Ltd

Lutheran Church of Australia South Australian District Inc v Farmers' Co-operative Executors & Trustees Ltd - [1970] HCA 12 - HCA 1970 case summary — Zoe

[20]

"He cannot leave it to another person to make such a disposition for him" (i.e. a complete disposition of the beneficial interest) "unless he has passed the beneficial interest to that person to dispose of as his own. He may, indeed, provide that a special class of persons or of institutions invested by law with the capacity of persons to hold property are to take in such shares as a third person may determine, but that is only because he has disposed of the beneficial interest in favour of that class as his beneficiaries." This view, the question of charity apart, would confine the creation of powers of appointment which could be regarded as testamentary dispositions to powers in the nature of a trust and to powers to appoint amongst a class, where it could be concluded from the terms of the will that the class obtained by the will a beneficial interest in the property the subject of the power. If this were the exclusive explanation of the validity of a power of appointment created by will, a power to appoint amongst a class with a gift over in default of appointment would seem to be excluded because the presence of the gift over denies the existence of a beneficial interest in the class. It may be that Sargant J. took this limited view of the creation of a power of appointment as a relevant disposition when he expressed the exceptions to the general rule that the testator must himself make his testamentary dispositions. In Re Hughes; Hughes v. Footner [3] his Lordship said: The general law on the subject is well settled, and is that the power of testamentary disposition is essentially a personal one and cannot be exercised by a will merely purporting to delegate to another the distribution of the testator's estate and the ascertainment of the objects of his bounty. But there are some real or apparent exceptions to or qualifications of this general rule. One is that of the creation of a general power which the donee may exercise for his own benefit, for such a power is equivalent to property. Another is that of the creation of a power of distribution amongst charities. A third is that of the creation of a power of selection amongst individuals or a class of individuals who are pointed out as the beneficiaries: see Houston v. Burns [1] . This Court had occasion to consider the theoretical basis for the treatment of the creation of a power of appointment as a testamentary disposition in Tatham v. Huxtable [2] . Fullagar J. says [3] : It seems quite consistent with legal principle to say that the creation by will of a general power of appointment (which has been said to confer the equivalent of ownership) is a testamentary disposition of property. It also seems consistent with legal principle to say the same of the creation of a special power of appointment among a class, where the class is described with certainty and (as in the normal case) there is, unless and until the power is exercised, a trust for the class or for persons who are to take in default of appointment. Where there is, as a matter of construction, no such trust, there does seem to be a departure from principle if we say that the creation by will of a special power to appoint among a class is a testamentary disposition of property, but to say so represents a natural enough "latitude" of view, which is perhaps characteristic of a system which has never regarded strict logic as its sole inspiration. Unless, however, there is a class designated with certainty, to say that the creation of a power to select beneficiaries amounts to a testamentary disposition of property is not merely to relax the principle to meet an exceptional case but to deny the principle absolutely. 1. [1918] A.C., at pp. 342, 343. 2. [1921] 2 Ch. 208, at p. 212. 3. [1918] A.C., at pp. 342-343. 4. (1950) 81 C.L.R. 639. 5. (1950) 81 C.L.R., at p. 649.

[26]

Generally speaking, the will creating a special power of appointment upon its proper construction will have created a beneficial interest in the objects of the power in the property subject to it. But there may be a gift over in default of the exercise of the power. I have found no case in which the existence of the gift over has invalidated the creation of the power. That circumstance tends to indicate to me that provided the other certainties are present the absence of a beneficial interest created by the will in the objects of the power of appointment otherwise than by its exercise is not fatal to the validity of the power. When the property passes by virtue of an exercise of the power of appointment it does so as from the testator and not as from the donee of the power. This is a further circumstance which makes it difficult for me to accept the expression of opinion by Viscount Haldane to which I have referred as of universal validity. The view that a power may be valid, though no beneficial estate is otherwise given to the members of the class amongst whom the appointment may be made, can also be derived from In re Weekes' Settlement [1] and In re Combe; Combe v. Combe [2] . In neither of these cases, one of which involved a power created by a settlement to appoint amongst a class and the other a similar power created by a will, was the validity of the power to appoint questioned though it was decided in each case that the class did not have any beneficial interest under the will apart from an exercise of the power of appointment. In neither case was there a gift over. Indeed, the judgments in each case seem to assume that an exercise of the power would have validly created beneficial interests in the appointees who otherwise had no beneficial interest derived from the instrument creating the power. Also Fullagar J. in the quotation I have made from his judgment in Tatham v. Huxtable [3] appeared ready to concede the validity of a testamentary power to appoint amongst a class to which no beneficial interest had been given by the will itself. In Bristow v. Skirrow [4] , the provision in the will of Sir John Chetwode namely, "to the same uses, upon the same trusts, and to and for the same intents and purposes as his (the testator's) wife might have declared, or should thereafter declare, with respect to the disposition of her residuary personal estate" [5] and in default, ultimately for the next of kin of the testator, did not seem to Lord Romilly to be invalid. It was held in that case that in default of provision by the wife for the disposition of her residuary personal estate the property passed to the next of kin of the testator and not under the general residuary estate of his wife.

[57]

The other question is troublesome because it is clear enough that the testatrix did wish to use the Lutheran Mission to provide homes for aged blind pensioners out of her property. We have, however, come to the conclusion that the Chief Justice of South Australia was correct in holding that there is no gift in cl. 6. The words "have discretionary power to transfer" do not constitute a gift and there is nothing else from which to extract an intention to give. Indeed, it seems to us that the words "discretionary power" negative a gift. A discretionary power to transfer in specie, by itself, is not a gift. Here there is nothing more. If the trustees were to exercise the discretionary power which the testatrix has sought to confer upon them by deciding not to transfer the mortgages, etc., the Lutheran Mission would have no claim to them or to the proceeds of their realization. This reveals that it is only by depriving the trustees of a discretion to transfer, and treating them as being under an obligation to transfer, that a gift can be inferred. To do this would be to contradict the language of the testatrix. Unfortunately the testatrix had left the fulfilment of her wish to the discretion of her trustees. She did not create a trust for a charitable purpose; she left it to her trustees to decide whether or not her property should go to charity. A case such as Smith v. West Australian Trustee Executor & Agency Co. Ltd. [1] , is clearly distinguishable. There it was held that there was a good charitable bequest because, by the terms of the will, the money had to go to charity. Here the property would not go to charity unless the trustees should so decide. If cl. 6 of the will were to be regarded as a testamentary disposition it would follow that a testator could delegate to his executor the power to decide whether part of his estate should be transferred to a particular person. Nothing can turn upon the unquestionable fact that a gift for the building of homes for aged blind pensioners would be charitable for the simple reason that the testatrix has made no such gift. Here there is no trust for charitable purposes, no general power of appointment, no special power of appointment. The words used simply leave it to the trustees to decide, at some time after the death of the testatrix, whether or not to establish a trust without provision for the period between the date of death and the constitution of such trust.

[59]

It is to be remembered that the ultimate basis of the rule lies in the Wills Act, which provides that every person may dispose of all his property by will but that no will shall be valid unless it is in writing and executed by the testator in a particular manner. It is inherent in the very nature of the power so given that it cannot be delegated or exercised by an agent for the testator, and it seems to me necessarily to follow that some powers of appointment, which would be perfectly good in any instrument other than a will, are ineffective in a will for the simple reason that they do not amount to a testamentary "disposition" of property, or indeed to any "disposition" of property at all. His Honour clearly enough regarded it as a departure from legal principle to treat as valid a special power of appointment in the absence of a trust in default of appointment. If, as Fullagar J. thought, a "latitude" of view might justify treating such appointments as valid, it seems to us to afford no basis on which to treat an authority to dispose of the testator's property to a named person or institution as a true testamentary disposition of property. Such latitude of view would destroy the rule. Kitto J. said [3] : It is a "cardinal rule" to which a power of selection among charitable objects is the sole exception, that "a man may not delegate his testamentary power. To him the law gives the right to dispose of his estate in favour of ascertained or ascertainable persons. He does not exercise that right if in effect he empowers his executors to say what persons or objects are to be his beneficiaries": Chichester Diocesan Fund and Board of Finance v. Simpson, per Lord Simonds [4] . It is therefore necessary in all cases (other than charity cases) that the persons or objects to benefit under the will shall be, by the will itself, ascertained or made ascertainable. They may be made ascertainable by reference to a specified future event, including an act to be done by another person provided that that act does not amount to the making by one man of another man's will: Stubbs v. Sargon [5] . 1. [1897] 1 Ch. 289. 2. (1940) 63 C.L.R. 232, at pp. 245-246, 257 and 262. 3. (1950) 81 C.L.R. 639. 4. (1950) 81 C.L.R., at p. 649. 5. (1950) 81 C.L.R., at p. 653. 6. [1944] A.C., at p. 371. 7. (1838) 3 My. & Cr. 507, at pp. 511-512 [ 40 E.R. 1022, at p. 1024].

[67]

The expression "Commonwealth bonds" is not a technical term. It has no strict primary meaning. It can be used, and it is sometimes used, to mean treasury bonds as defined in the Act, as distinct from stock as there defined. It can no doubt mean too bonds issued pursuant to the Loans Securities Act 1919-1959 Cth. These differ from both treasury bonds and stock: see Ervin v. Federal Commissioner of Taxation [2] . It can also denote "special bonds" as defined in s. 23E (3) of the Income Tax Assessment Act 1936-1937 Cth. But we are not concerned with any particular kinds of bonds. The only question is whether we are to read the words "Commonwealth bonds" as including both inscribed stock and treasury bonds issued under the same Act and substantially equivalent as securities. The learned Chief Justice of South Australia said that the term "Commonwealth bonds" can, used in an ordinary sense, denote inscribed stock. That I consider is indisputable. Of course, what one accepts as an ordinary sense of a word or phrase must depend upon one's acquaintance with it in ordinary parlance and in writings that are ordinarily read and widely read. People who read newspaper reports of dealings and quotations on Australian stock exchanges must be aware of different descriptions of Commonwealth loans. Among the headings that anyone can read - depending upon the newspaper he consults - are "Government Bonds", "The Bond Market", "Australian Consolidated Securities", "Commonwealth Loans", "Loans", "Bonds". It is, I consider, entirely permissible for a judge, who has to take notice of the ordinary meanings of the words here in question, to be aware of and to notice these usages. Resorting to stock exchange nomenclature, when considering the meaning today of "Commonwealth bonds", seems no less justifiable than were Lord Simon's quotations from the Bible and from Tennyson for the meaning of "money" in 1943. The only significant legal distinction between stock and bonds issued in respect of subscriptions to the same loan is in the methods by which they are transferable: the former by an instrument of transfer in the prescribed form; the latter by delivery (s. 51C of the Act and s. 5 of the Treasury Bills Act 1914-1966 Cth). This does not affect testamentary disposition of either. The interest of a subscriber to a Commonwealth loan can, at his option, be recorded and authenticated by an inscription of stock or by the issue of a bond: and, by s. 51E of the Act, either is exchangeable for the other.

[80]

I shall come later to the question I have propounded as the main question, namely whether upon its true construction the clause is purely facultative or is imperative and facultative. I want first to say that what I do not understand is why it should be said that, if the correct reading is that the trustee has a mere power, it cannot now lawfully do what the testatrix expressly empowered it to do. To say that an express discretionary power to dispose of property for a specified charitable purpose means that the property cannot be so disposed of by the donee of the power, but must go to the next of kin, seems to me to defy the language. The result would be to remove all discretion from the trustee, and to frustrate altogether the charitable desire of the testatrix. Assuming that cl. 6 be read as conferring a bare power of disposition, not coupled with any trust or enforceable duty in favour of the designated charity, nevertheless, as I see the matter, the trustee could still lawfully allow the claims of charity to prevail. A discretionary power, given to a trustee as such, to act or not to act in a specified manner imposes a duty on the trustee at least to consider the matter and to decide deliberately whether or not to exercise the power. Lord Reid recently said, in In re Gulbenkian's Settlements [1] : "A settlor or testator who entrusts a power to his trustees must be relying on them in their fiduciary capacity so they cannot simply push aside the power and refuse to consider whether it ought in their judgment to be exercised." If it is a mere power, the court cannot dictate to trustees whether it should be exercised, or not exercised. That discretion is committed to them. But, even in that case, the court is not entirely unconcerned; for if trustees having a purely discretionary power refuse to consider whether and how they will exercise their discretion, then the court will remove them and substitute new trustees - who will have the same discretion but who, it is hoped, will not be recalcitrant. That would not be a usurpation by the court of the discretion given to trustees. It would be merely a means of accomplishing its exercise one way or the other by dutiful trustees: Inland Revenue Commissioners v. Broadway Cottages Trust [2] .

[83]

I do not question the rule that a person cannot by his will delegate to another person the choice of those who are to take his estate. However, it is a rule the strictness of which must be accommodated to, and qualified by, the well-established power of a testator of giving a dispositive power of appointment to, or among, specified objects of his bounty. The logical dilemma thus arising was strikingly brought to notice in 1953 in the article "Delegation of Will-Making Power" in the Law Quarterly Review, vol. 69, p. 334. But we must decide the question according to established doctrine, rather than by purely abstract reasoning. This case is not like one in which a testator gives, to someone who cannot himself take beneficially, a power to dispose of the estate, or of some specified part of it, as he, the purported donee of the power, wishes. Provisions of that sort fail. They have sometimes been said to fail for lack of certainty - see e.g. Yeap Cheah Neo v. Ong Cheng Neo [1] - although the meaning of the words used seemed certain enough. Whatever be the explanation of invalidity in cases of that sort, the trustee in this case is not given a power to select whomsoever it wishes to enjoy the testator's estate. It is given a circumscribed power to transfer property for a particular charitable purpose. There is only one expressed object in favour of which the power is exercisable: and there is no gift over in default of its exercise. Counsel for the next of kin seized on the absence of a gift over as indicative that the power is invalid. But I do not see how that can be so. If the power be a bare power then, if it is not exercised, the next of kin will take. That I do not question. Whether it should be said that they are entitled subject to the exercise of the power, or that they take an interest defeasible upon its exercise, matters not. The latter is now the accepted manner of stating the interest of persons who are entitled under a gift over: see English cases cited in Halsbury's Laws of England, 3rd ed., vol. 30, p. 240. For a power of appointment to be valid there must be someone who satisfies the description of an object of the power. But a power to apply property to a specified charity, or to select among charities generally, can never in itself fail for uncertainty: Smith v. West Australian Trustee Executor & Agency Co. Ltd. [1] .

[92]

The expression "a discretionary power" is common in legal writings. It appears frequently in textbooks; and it has often been used by judges, at least since, if not before, Lord Blackburn did so in Chambers v. Smith [1] . But it is not a technical term. A power may be called discretionary because the donee has an option whether to exercise it or not. Equally well, however, a power can be called discretionary when the donee has a duty to exercise it, but cannot be directed as to the manner in which he is to do so. The latter situation can occur when trustees have an unfettered discretion to select among the objects of a power or to determine in favour of an object to what extent and in what way they will exercise the power. Gisborne v. Gisborne [2] is the classic example of a discretion of the latter kind. I am not convinced that the words "discretionary power" in this will merely confer upon the trustee power to do, or not to do, what the testatrix authorized. The words must be read in their context. I do not read them as meaning that the testatrix wished the trustee to decide whether or not it would make over her residuary estate to the charitable purpose she nominated. If a testator's will were to conclude simply, "I empower my trustee to transfer all the residue of my estate to X" (a person or a charity), I would think that, unless the context otherwise required, that would create a trust of the residue for X. The words would be enabling; but behind them would lie a duty. I am not persuaded that the addition in this case of the adjective "discretionary" to the facultative word "power" destroys the duty. The will, read as a whole, reflects I consider a wish that the power be exercised. The absence of any gift over in default of the exercise of the power strengthens this. The presence of a gift over would prevent a gift by implication to the object of the power. The absence of a gift over in this case is to my mind a strong indication that the testatrix meant the charity to be the object of her bounty. There is, I think, sufficient scope for the adjective "discretionary" if it be read as referring to the time and manner in which the power should be exercised, not as to whether or not it should be exercised. It imports indirectly a discretion to decide which assets should be realized to enable "all expenses" to be paid and legacies provided and which would remain capable of being transferred in specie to the charity. Secondly, it enables the trustee to transfer assets, at its discretion, as and when required for the building of homes. So regarded, the express discretionary power is in aid of an implied trust: cf. Tempest v. Lord Camoys [1] and comments in In re Bryant; Bryant v. Hickley [2] .

[94]

An analogy, not complete but nevertheless instructive, is to be found in what are often called "powers in the nature of trusts". These have usually arisen when a special power of appointment among a class of objects has been given without any express provision for a default of appointment and the donee of the power has died without exercising it. In such cases the non-exercise of the power of appointment and selection among the nominated class of objects does not necessarily prevent them benefiting. The court will construe the power as in the nature of a trust and the possible beneficiaries will be held entitled to the subject property in equal shares. This is a topic on which there has been a great difference of learned opinion. Is there an inflexible rule that the absence of a gift over suffices for the implication of a trust? Or is some further evidence of intention necessary? The question was alluded to and the conflicting opinions were cited by Dixon J. in Perpetual Trustee Company (Ltd.) v. Tindal [3] . His Honour said that "in the result textbooks generally seem to place the question upon a search for intention without formulating a clear and definite presumption or rule of construction". I add to the references there given the later discussion of the question by Harman J. in In re Perowne, decd.; Perowne v. Moss [4] and the article "Powers" in Halsbury's Laws of England, 3rd ed., vol. 30, at pp. 210-211. The leading textbooks on wills, powers and trusts generally suggest that the doctrine of powers in the nature of trusts had its genesis in the decisions in Harding v. Glyn [5] ; Brown v. Higgs [6] , and Burrough v. Philcox [7] . Cases since then have been numerous. Whether or not the rule can be extended from a special power of appointment among a class of objects to a special power to appoint to a single nominated object may, I realize, be questionable. However, in the present case I think that an overriding intention to benefit the charity is plain, and that suffices. If the rule of construction, so often applied in relation to powers of appointment, be thought directly applicable, it merely strengthens what I think is sufficiently manifest. It seems apposite to quote one passage from the judgment of Lord Eldon in Brown v. Higgs [8] :

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