Michael v Callil [1945] HCA 39

Michael v Callil [1945] HCA 39 - HCA 1945 case summary — Zoe

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Vadya. 12. Notwithstanding the directions to accumulate con- in clause 11 of this my will 1 empower my trustees if they in absolute discretion think fit so to do to advance out of the income my residuary trust estate during the lifetime of my son Wadya for the maintenance benefit and welfare of the persons hereinafter men- the following sums: (a) Such sum not exceeding five pounds week as they in their absolute discretion shall determine for my ghter-in-law Myrtle " (Wadya's wife) " until her death ; (b) Such not exceeding three pounds per week as they in their absolute tion shall determine for my granddaughter Roma for her life ; e) Such sum not exceeding ten pounds per week as they shall in their olute discretion deem fit for my grandson Alec during the lifetime f his father Wadya ; (d) Such sum as they shall in their absolute and uncontrolled discretion think fit for the maintenance and benefit of my son Wadya during his life. I direct my trustees to invest all income not applied by them as aforesaid in securities authorized by ww to trustees. 13. Upon the death of my said son Wadya I direct ny trustees to stand possessed of my residuary trust estate in trust to pay out of the income therefrom the sum of five pounds per week to my daughter-in-law Myrtle and to pay the residue of the income to 'my granddaughter Roma for life and upon the death of the said Roma I direct my trustees to stand possessed of my residuary trust estate together with all accumulated income" upon trust for the children Roma with gifts over to testatrix's grandson Alec and others in the of Roma's death without issue. " 14. I empower my trustees : _ (a) To grant leases and accept surrenders of leases and to grant and equire easements in respect of my real estate ; (b) To postpone the ile realisation and conversion of my trust estate or any part thereof for such period as they shall in their absolute discretion think fit ; {c) To manage my real estate in as full and effectual a manner as if I vere present acting in my own person and to carry out all necessary and improvements thereto. 15. I authorise my trustees to e any part or parts of the then expectant presumptive or vested of any child or grandchild of mine in my trust estate under e trusts herein contained and to pay or apply the same for the

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trary in this will notwithstanding without being responsible for loss arising therefrom. I also empower my trustees to retain m trust estate in the same investments in which it is invested at the date of my death." The testatrix's husband, Assid Michael, had died in 1925, leay a will by which he left his residuary estate on trust to pay the i thereof to her for life and after her death to their son, Wadya, for life. During the life of the testatrix, Wadya (who survived the trix) became bankrupt, and she bought from his trustee in bankrupte his future life interest in his father's estate. This interest was the ~ most valuable asset in her estate; otherwise the estate had 1 substantial source of income. The periodical payments received the testatrix's trustees on account of Wadya's life interest in his father's estate were treated by them as income of the testatri: residuary estate and applied accordingly under clause 12 of will. Without these moneys the income of the residuary estate would not have been sufficient to permit the payments contemplate by clause 12. : F. A. L. and G. Callil, the executors and trustees of the testatrix, applied to the Supreme Court of Victoria by originating summons for the determination of questions which, so far as here material, were substantially as follows : -

Did the periodical sums received by the estate of the testatrix from the estate of her husband under the assignment of Wadya' life interest constitute " income " within the meaning of testatrix's will ? é
Did the whole of such moneys form part of the corpus of her - estate ? '
(a) Was it the duty of the plaintiffs to apportion such bag between corpus and income ? (b) If yes to part (a), upon what principle should such apportion- ment be made ? : The defendants to the summons were Roma Dowling, Myrtle Michael, Alec Michael, Wadya Michael and Salem Fakhry (who w: sued as representing himself and all persons, other than the named defendants, interested in the residuary estate). The summons came before Martin J., who answered the questions | as follows : - 1. No. 2. No. 3. (a) Yes. 3. (b) By valuing the right - to receive moneys from the estate of Assid Michael as at the date of the death of the testatrix and allowing four per centum on such val to be available for distribution as set out in clause 12 of the will. From this decision Alec Michael appealed to the High Court, join- ing all other parties to the summons as respondents to the appeal.

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he trustees, the rule is excluded : Gray v. Siggers (1) ; In re Wilson ; vy. Wilson (2). : If, pending the conversion, there is a gift to the tenant for life of income actually produced by existing investments, the rule is luded. In Alcock v. Sloper (3), the court clearly enunciated the eral rule in the following words: "where a testator limits his uary property to one for life, with remainder over, it is prima to be intended that the testator means that the same property hich is given to the tenant for life should go to those entitled n remainder; and if any part of the residue be of a wasting ture, as long annuities or leasehold estate, in order to effect this general purpose of the testator such wasting property must be sold nd converted into permanent property " (4). But this prima-facie rule was displaced by evidence of contrary intention, even in the e of terminable annuities. A life interest was given to the tator's wife and conversion was postponed till after her death. 'this reason the rule was excluded. If there had been no direction postponement of conversion the rule would have been applied. re Sherry ; Sherry v. Sherry (5) is a case where there was a discre- ary trust (not a direction) for conversion with a provision showing a clear intention that the widow of the testator should have the ctual rents, profits and income of his estate while it remained unconverted. _ There may be a specific reference to the income of particular v nts which shows that the testator intended that the actual ome of those investments should be enjoyed by the life tenant - as, for example, in In re Inman ; Inman v. Inman (6), where the trustees e empowered to postpone conversion and specifically to permit nal estate invested at the decease of the testator upon any stocks, funds or securities whatsoever yielding income to continue in the same state of investment so long as they should think fit. It was held that this provision showed an intention that the trustees ld retain certain shares which were held to be stocks within the ing of the will, and that the tenants for life were entitled to eceive in specie all the dividends from the shares. See Halsbury's Laws of England, 2nd ed., vol. 33, p. 118. _ But the rule does apply where there is a trust for conversion, and such a case the rule is not excluded by a discretionary power to

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example, under the rule that, if income-bearing personalty of a ing description is subject to an express or implied trust for cony there must be an adjustment between tenant for life and rema man in respect of income derived pending conversion, the y question is how much of what the trustee receives as income must treated as capital enuring for the benefit of the remainderman, will be found that this is recognized in most of the cases relied upc for the contention that the distributions of income by the husba estate are contributions of capital to that of the testatrix. Shadwe V.C. in Crawley v. Crawley (1), when he safs that, until the execut could sell the annuity in that case, they must invest the paymen and that the interest on the investments would be payable to tenants for life of the residue and the capital of the investments would form part of the capital of the estate, does not appear me to be deciding that annuity payments do not have an income character. What he is saying is that, in fairness to the remainder man, they must be capitalized. Stirling J. in In re Whitehead; Peacock v. Lucas (2) states the question before him as whether the 3 income from the particular fund is income payable to the tenant for life under the will or capital which ought to be invested, that only the income arising from the investments would be payable to the tenant for life. In In re Fisher ; Harris v. Fisher (3) it is true that Bennett J. regarded all the policy moneys, there in question, as capital receipts of the estate, whether consisting of a lump sum, or periodical payments, and in In re Payne ; Westminster Bank Ltd. v. Payne (4) Uthwatt J., though deciding the matter more on terms of the will before him, also examined the inherent characteristi of the contractual receipts under consideration in that case. these cases merely illustrate the rather obvious fact that what coi into the hands of a trustee may form a capital receipt or an income receipt according to its nature, quite apart from the way that, under the trust instrument, he must apply it. In Re Hey's Set

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a Michael who died on 18th July 1939. Under the will of her nd, who died on 30th April 1925, the testatrix was entitled oan estate for life with remainder to her son Wadya for life. Wadya me bankrupt and the testatrix purchased his life estate in nder from his trustees in bankruptey. By her will, which s made on 21st February 1939 and is divided into paragraphs, the trix devised and bequeathed her real and personal estate to trustees upon the trusts therein set out. After bequeathing some small pecuniary legacies, giving certain directions with respect to her grave, and specifically devising her property in High Street, Windsor, the testatrix by paragraph 11 directed her trustees to stand d of the rest and residue of her estate in trust to convert he same into money, and after payment of her debts, funeral and tamentary expenses and probate and estate duties, to invest: the thereof in securities authorized by law, and to stand pos- of such investments in trust to accumulate the income there- from during the lifetime of Wadya. By paragraph 12 the testatrix, ithstanding the direction to accumulate contained in clause 11, powered her trustees, in their absolute discretion, during the life- time of Wadya, to advance out of the income of her residuary trust certain sums for the maintenance, benefit, and welfare of the ms therein mentioned, and directed her trustees to invest all the ome not so applied in securities authorized by law to trustees. sums amounted to £18 per week, and in addition the trustees e empowered to pay such sums as they should in their absolute nd uncontrolled discretion think fit for the maintenance and benefit Wadya during his life. By paragraph 13 she directed her trustees, after the death of Wadya, to stand possessed of her residuary trust ,, subject to the payment of an annuity to his widow, upon trust life tenants and remaindermen as therein mentioned. By para- ph 14 (b) she empowered her trustees to postpone the conversion of her trust estate or any part thereof for such period as in their absolute discretion they thought fit, while by paragraph 16 they were wered to retain the trust estate in the same investments in which 'it was invested at the date of death. The assets comprised in the e of the testatrix at the date of her will and death, apart from the ically devised property in High Street, Windsor, were land val- at £1,200, personal property valued at £550, and Wadya's life est under his father's will. The assets comprised in the father's te were two freehold hotel properties in Melbourne valued at 50, subject to mortgages totalling £21,150. The rents from these els constituted the income of his estate, which his trustees, after

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The first question that arises is whether the payments received by them from the trustees of the estate of her husband were income or capital. By purchasing Wadya's life interest the testatrix had acquired the right, upon the determination of her own life estate, to receive from the trustees of her husband's estate the income of that - estate during Wadya's life. At the date of death the capital value of this asset was the value of the present right to be paid this income. As the right to this income would cease upon his death, these pay- _ ments were terminable payments of the same nature as the rents of a leasehold estate, or the dividends on shares in a company formed to work a wasting asset such as a mine. If by her will the testatrix - had created life estates and remainders the question would have arisen how this income should be disposed of as between the persons entitled in succession. Unless the will had provided that the purchase of such an interest should be an authorized investment, or that the - trustees should be authorized to retain any investments which she - had at the date of death and pay the income thereof to the tenant for life, then, if there had been an express trust for conversion or an implied trust for conversion under the rule in Howe v. Lord Dart- mouth (1) it would have been necessary, pending conversion, to ascertain the capital value of the asset at one year after the date of death and pay the life tenant four per cent on that value, and accumulate and invest the balance of the income in authoriai investments for the benefit of the remaindermen ; or alternatively, to invest the income in authorized investments and pay the life tenant the income of the investments: Crawley v. Crawley (2); In re Whitehead (3). The payments received from the estate of the husband would have been payments of the income of a terminable asset and would have been received by the trustees of the will of the testatrix as income. The life tenant would not have been enti to this income because it would not have been the income from an authorized investment. But these payments would not be capital

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or dividends from shares in a company owning a wasting asset d be capital. In Alcock v. Sloper (1) and in In re O'Hagan ; vy. Lloyds Bank Ltd. (2) the tenants for life were held to be ed to terminable annuities. In the last-mentioned case Clauson he then was, said that "it was well settled that a terminable y ought to be treated as property which, though terminable, to be treated as part of the testator's estate producing income " and in In re Sherry ; Sherry v. Sherry (4) Warrington J., as he was, held that payments in respect of a life interest similar to he present life interest were income. The reason why the life tenants vere entitled to the income in these three cases was that in Alcock v. oper (1) the trust was not an immediate trust for conversion but to convert after the death of the tenant for life so that tenant for life was entitled to the income of the residuary estate, therefore to the terminable annuities, while in In re O' Hagan (2) In re Sherry ; Sherry v. Sherry (4) there was an express direction pending conversion the life tenant should be entitled to the of the unconverted assets. On the other hand, in Crawley v. (5), while there was no express trust to convert, there was mplied trust under the rule in Howe vy. Lord Dartmouth (6), so the interest upon the accumulations, though received by the as income, had to be invested and accumulated and therefore as capital as between life tenant and remaindermen; and re Whitehead (7) the same result followed because there was an ess trust to convert so that the income had to be dealt with same manner. Stirling J., as he then was, said that the ciples of Crawley v. Crawley (5) applied so that the income d on the fund must be treated as capital and invested (8), and there was nothing in the will which showed that the intention it the tenant for life should receive this income as income (9). cases are authorities which show, to my mind, that the pay- in the present case were received by the trustees as income. Mr. Spicer relied on two decisions: In re Payne (10) and re Hey's Settlement Trust (11), which he said indicated the contrary. yne's Case (10) appears to have been decided upon the terms of the will, but I find it difficult to draw so fine a distinction as rdship did between the phrases " income of my estate" and

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Judgment (194 paragraphs)