Michael v Callil [1945] HCA 39

"of the estate as should be required to pay debts, &., and certain legacies "py, Starke

specified. The will then set out the legacies and a specific devise. It directed Wyniima jy? _ the trustees to stand possessed of " the rest and residue of my trust estate"

in trust to convert the same into money and after payment of debts, &c., to

invest the proceeds in securities authorized by law and to accumulate the

"income therefrom during the lifetime of W. (clause 11). It empowered the

• trustees " notwithstanding the directions to accumulate contained in clause 11

_. . . if they in their absolute discretion think fit so to do to advance out

of the income of my residuary trust estate" during the life of W. stipulated

_ maximum weekly sums (amounting in all to £18 a week) for the maintenance

_ benefit and welfare of W.'s wife, a granddaughter and a grandson, and such

_ sum as in their discretion they thought fit for the maintenance and benefit

of W. during his life and directed the trustees to invest all income not so | applied in authorized securities (clause 12). It directed the trustees on

the death of W. to stand possessed "of my residuary trust estate," subject

to the payment of £5 a week to W.'s widow, upon trust for life tenants and

remaindermen. It empowered the trustees to postpone conversion " of a

By her will M. specifically bequeathed certain chattels and devised and = - -

_ bequeathed the whole of her real and the residue of her personal estate (there- pacar ec. 13.

HIGH COURT (1945. my trust estate or any part thereof for such period as they shall in their absolute discretion think fit" and to "retain my trust estate in the same investments in which it is invested at the date of my death." Ms _ husband, A., had predeceased her leaving a will by which he left his residuary estate on trust to pay the income thereof to M. for life and after her death to their son, W., for life. W. survived M. During Ms life W. had become bankrupt, and M, had purchased from his trustee in bankruptey his future life interest in A.'s estate. 'his interest was the most valuable asset in her estate; apart from it the estate had no substantial source of income. The periodical payments received by M.'s trustees on account of - W.'s life interest were treated by them as income of M.'s residuary estate and applied accordingly. Otherwise the income of the estate would not have _ been sufficient for the payments contemplated by clause 12 of the will. :

Held, by Rich, Starke, Dixon, McTiernan and Williams JJ., that the moneys received by the trustees on account of W."'s life interest were "income of my -

residuary trust estate" within clause 12 of the will and were properly applied =f

by them in the manner thereby provided without any such apportionment as would have been appropriate if the terms of the will had permitted the applica- tion of the rule in Howe v. Lord Dartmouth, (1802) 7 Ves. 137 (82 E.R. 56), or In re Chesterfield's (Barl) Trusts, (1883) 24 Ch. D. 643 (Latham C.J. being of opinion that the moneys in question were capital in the hands of the testatrix's trustees and that the case was one for the application of the rule in mys re Chesterfield's (Earl) Trusts, (1883) 24 Ch. D, 643.)

Decision of the Supreme Court of Victoria (Martin J.) varied.

Martha Michael died on 18th July 1939 leaving a will by which she specifically bequeathed certain chattels and devised and bequeathed the whole of her real and the residue of her personal estate "(hereinafter called 'my trust estate ')" to her trustees on trust to distribute her personal effects among persons named and to " convert into moneys such part of my trust estate as shall be required - to pay my just debts funeral and testamentary expenses . - probate and estate duties . . . and the legacies and payee hereinafter bequeathed and directed to be paid and to pay such debts duties expenses legacies and payments." 'The will then provided for certain specific legacies and a specific devise. It proceeded as fol- lows: "11. I direct my trustees to stand possessed of the rest and residue of my trust estate in trust to sell realise and convert the same into money and after payment of my just debts funeral and tes- tamentary expenses the probate and estate duties payable upon my estate to invest the proceeds thereof in securities authorized by law to trustees and to stand possessed of such investments in trust to - accumulate the income therefrom during the lifetime of my son

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

h child or grandchild in such manner as my trustees shall think and declare that this power shall be in addition to the powers

e by them and at any time to realise upon any part of my trust and re-invest the proceeds of such realisation in any invest- its whatsoever that to my trustees seem fit anything to the con-

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 : -

1. 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
2. Did the whole of such moneys form part of the corpus of her - estate ? '
3. (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.

s not apply where the will shows an intention to the contrary. h an intention appears from the will now in question. The received on account of Wadya's life interest are not of a nature but are wholly income. The capital asset of testatrix's te is Wadya's equitable life estate ; it is the tree which bears the Cf. In re Fisher; Harris v, Fisher (2). These moneys are therefore "' income of my residuary trust estate" within clause 12 'the will and applicable accordingly pending conversion. (The estate " referred to throughout the will is the whole of the y given to the trustees in the preamble to the will.) It from the terms of the will and the condition of the estate ve been intended that these moneys should be applied in specie clause 12. Where, as in the present case, there is a trust to an absolute discretion to postpone conversion and a dis- on to retain the estate in an unconverted state, the inference is the tenant for life (or similar beneficiary) is to receive the income in specie pending conversion unless the powers to postpone and n are merely incidental and for convenience in administration. s case is not affected by the decision in In re Chaytor ; Chaytor v. (3); there the will was interpreted, rightly or wrongly, as giving anything except income from the proceeds of conversion. clause 11 of the present will the income to be accumulated is 'that of "such investments " - literally, of the invested proceeds of rsion only. The expression in clause 12, " income of my residu- trust estate," is wider unless, having regard to clauses 14 and 16,

u ments " in clause 1] is given an extended meaning to make it

se 11 would be more likely to effectuate the intention of the ix is shown by clauses 13 (there, again, the reference is to

estate), 16 (the phrase " trust estate " is used to include uncon- assets, and the class of authorized investments is enlarged eclause 11). [He referred to Theobald on Wills, 9th ed. (1939),

( , Pp. 241-249, 253, 254, particularly pp. 244, 248, 249 ; Lewin

Trusts, 14th ed. (1939), pp. 235, 236; Hanbury's Modern Equity, | ed. (1943), pp. 206-209 ; Jarman on Wills, 7th ed. (1930), pp. 1219, especially p. 1201; In re Inman ; Inman v. Inman (4) ;

) (1802) 7 Ves. 137 (32 E.R. 56). (3) (1905) 1 Ch. 233: See pp. 234, (1943) Ch. 377: See, particularly, 238-240. Pp. 386, 387. (4) (1915) 1 Ch, 187, at p. 191.

for the appellant. The rule in Howe v. Lord Dartmouth (1) 4. ©: oF A.

H.C. or A. In re Nicholson; Eade v. Nicholson (1); In re Bates; Hodgson y, - Ragin Bates (2); In re Wilson ; Moore v. Wilson (3) ; Gray v. Siggers (4); Micuar, 2" re Thomas; Wood v. Thomas (5) ; In re Chesterfield's (Earl) 2 Trusts (6) ; Beavan v. Beavan (7).] Moreover, this is not the ord sara case of tenant for life and remaindermen. Assuming the receipts be income, no question of apportionment arises where (as in this case

the trustees have an absolute discretion to apply all or any of the |

income for the benefit of various individuals, and there is no life

tenant in the sense in which that expression is used in the equitable

tules relating to apportionment. If, contrary to the appellant' contention, the sums in question are wholly corpus, then they are apportionable, as received, between capital and income on the same

Hudson K.C. (with him Voumard), for the respondent trustees. The trustees join in the submission of the appellant. To treat the - sums in question as income is in accordance with the manifest - intention of the testatrix. That intention should not be frustrated - by the application of rules laid down in cases decided on other wills. [He referred to Perrin v. Morgan (8); Bate v. Hooper (9).) Ifthe - case is thought to be one for apportionment, the rule in In re Chester- field's (Earl) Trusts (10) is the appropriate rule. [He referred to Underhill's Law of Trusts and Trustees, 9th ed. (1939), p. 270.]

q Spicer, for the respondent Fakhry. Advances can be made under . clause 12 of the will only out of the income of the residuary estate of the testatrix, only out of the income of the estate of which she died ; possessed. There is nothing in the will to say that income of Assid Michael's estate is to be treated, when it comes into the estate of the testatrix, as income of her estate. The will discloses no such inten- tion as will exclude the rule in Howe v. Lord Dartmouth (11). zi character of Wadya's interest in Assid's estate must be examined. - The question which has to be determined is what is the asset that - Wadya's interest represents. This cannot be answered simply by ; saying that the " asset " is the right to receive payments from time - to time, that that right is the "tree" and the payments are the "fruit." Wadya had no right to enjoy in possession the property - from which Assid would have been entitled to receive income. The

(1) (1909) 2 Ch, 111, at p. 117, (8) (1943) A.C. 399, at pp. 406, 408, (2) (1907) 1 Ch, 22. 414, 417, 420,

(3) (1907) 1 Ch. 394, at p. 398. (9) (1855) 5 DeG. M. & G. 338 [43 (4) (1880) 15 Ch. D. 74, at p. 77. E.R. 901].

(6) (1883) 24 Ch. D. 643. (11) (1802) 7 Ves. 137 [32 E.R. 56].

are of necessity made by them out of what in their hands is income of the estate they administer, but it by no means follows that the sums ble to Wadya, or, in the events which have happened, to the s of the testatrix, are income in the hands which receive them. hsums cannot be treated as income unless the will clearly expresses intention that they should be so treated. The present will does t express this intention ; on the contrary, its provisions are incon- nt with this intention, and the sums in question must be regarded capital of the estate of the testatrix. If the sums received were to be applied under clause 12, the whole of Wadya's life interest could be exhausted during his life, and there would be no point in the direction to accumulate contained in clause 11 of the will or in the elaborate 'scheme in clause 13 in relation to the residuary estate after Wadya's death. Moreover, it is to be noticed that clause 13 provides for both tenants and remaindermen ; this case, therefore, is not to be s ed from the apportionment cases on the ground (if it is a ound of distinction) that no question as between tenants for life und remaindermen arises. The reported decision which is nearest the present is In re Hey's Settlement Trust ; Hey v. Nickell-Lean (1), hich distinguishes Neville v. Fortescue (2) on the construction of the Aleock vy. Sloper (3) and In re Sherry (4) are likewise dis- 'ble. In so far as In re O'Hagan ; O'Hagan v. Lloyds Bank d. (5) is to the contrary, it must be regarded as having been ongly decided. Accordingly, the apportionment rule should be to Wadya's life interest regarded as an asset in the estate of e testatrix. [He referred to In re Payne ; Westminster Bank Ltd. Payne (6) ; Andrews v. National Trustees, Executors & Agency Co. 'Australasia Ltd. (7).]

~ Roma Dowling and Wadya Michael submitted to any order the

_ Sholl, in reply. Neville v. Fortescue (2), Alcock v. Sloper (3), re Sherry ; Sherry v. Sherry (8) and In re O'Hagan (9) are indis- able from the present case and should be followed in prefer- 'to In re Hey's Settlement Trust (1), which is only a decision on the ing of the word " property " in a particular will; in so far as % (5) (1932) W.N. (Eng.) 188.

_ (2) (1848) 16 Sim. 333 [60 E.R. 902]. (6) (1943) 169 L.T. 365.

(3) (1833) 2 My. & K. 699 [39 E.R. (7) (1936) 56 C.L.R. 1, at pp. 6, Ll.

2111), (8) (1913) 2 Ch, 508, (4) (1913) 2 Ch. 508: See p. 510. (9) (1932) W.N. (Eng.) 188,

ayments made by Assid's trustees on account of Wadya's interest H. C. ov A,

it may be relevant here, it is based on Crawley vy. Crawley (1) (i which no reasons were given and which is inconsistent with In O'Hagan (2)), In re Whitehead ; Peacock v. Lucas (3) (which met decided that income of a legacy fund already segregated was | income of residue under the will there in question) and Jn re F (4), the judgment in which makes it clear that it does not affect present case. Scoble v. Secretary of State for India (5) supports view that the sums in question are income; so, also, Re SI Slater v. Jonas (6) and Re Aste; Mossop v. Macdonald (7) (wh are on the same lines as In re Inman (8)) and In re Wythes ; West 4 v. Wythes (9). If In re Chesterfield's (Earl) Trusts (10) is consid " applicable, it can be extended to future unascertained sums (Bea

v. Beavan (11); In re Hollebone ; Hollebone v. Hollebone (12)). this basis clause 16 of the will would not apply and, therefore, would -

Latuam C.J. Assid Michael, who died on 30th April 1925, by his will left his residuary real and personal estate upon trust to pay the - income thereof to his wife Martha Michael for her life and after her death to his son Wadya for life. The income was duly paid to Mrs. - Michael in accordance with the directions contained in the will. During her life her son Wadya became bankrupt, and she bought - from his trustee in bankruptcy his future interest in his father's - estate. Mrs. Michael died on 18th July 1939. Her trustees have, under the assignment made to her by Wadya's trustee, receivs about £2,570 per annum from Assid Michael's estate. Under Mrs. Michael's will the trustees had a discretion to advance out of income of her residuary trust estate during the lifetime of Wadya to specified persons sums not exceeding £18 per week and such sums as they should think fit for the maintenance and benefit of Wad, during his life. The trustees have applied a substantial part of the - moneys received from Assid Michael's estate in making these pay- ments. The question now arises whether they were right in treating the moneys so received as income of the estate of their testatrix. a

The assigned interest of Wadya which belonged to Mrs. was plainly a wasting asset. Upon an application by originating

(1) (1835) 7 Sim. 427 [58 E.R. 901]. (6) (1915) 113 L.-T. 691.

(2) (1932) W.N. (Eng.) 188. (7) (1918) 118 LT. 433.

(3) (1894) 1 Ch, 678: See pp. 684, (8) (1915) 1 Ch, 187. 685. (9) (1893) 2 Ch. 369.

(5) (1903) 4 Tax Cas. 478, 618: See (11) (1853) 24 Ch. D. 6 pp. 619, 622. (12) (1919) 2 Ch. 93, at pp. 96-98.

mmons, the Supreme Court of Victoria (Martin J.) applied the rule Howe v. Lord Dartmouth (1). Under this rule where residuary estate is given in succession the assumption is, in the nce of evidence of contrary intention, that it was intended that beneficiaries should enjoy the same thing in succession. In to give effect to that intention, the rule is that the trustees required in the interests of a beneficiary for life to realize such s of the trust property as consist of reversions or future interests in the interest of beneficiaries in remainder, to realize any wast- assets. The money realized must be laid out in permanent tments, and the person entitled for life then receives the income d by those investments. Applying this rule, Martin J. decided the moneys received by the trustees were not all income nor all s, and that the moneys should be apportioned between corpus income by valuing the right to receive moneys from the estate of Assid Michael as from the date of the death of the testatrix and 'ing four per cent of such value to be available for distribution

n appeal is brought to this Court. It is contended for the it and for the trustees that the trustees acted rightly in with the moneys in the manner stated and, alternatively, it, at least, the apportionment should not be as determined by he learned Judge (Meyer v. Simonsen (2) ), but that the principle of ve v. Lord Dartmouth (1) should be applied in the manner adopted In re Chesterfield's (Earl) Trusts (3). If the rule in the latter case 8 an inquiry is directed as to the sum which, put out at a rate of interest on the date of the testator's death and accu- at compound interest calculated at that rate with yearly would, with accumulations of interest, have produced on the of receipt of moneys by the executor or trustee the amount lly received. A sum so ascertained is to be treated as capital, the residue of the sum received as income. property of Mrs. Michael at the time of her death consisted house at Windsor, the purchased interest of Wadya Michael in father's estate, £1,011 cash, and other assets of the value of about 'y her will the testatrix devised and bequeathed the whole of her and the residue of her personal estate (after certain specific s) to her trustees upon trust to distribute certain personal s, to convert into money such part of the estate as was required

(1802) 7 Ves. 137 [32 E.R. 56]. (3) (1883) 24 Ch. D, 643. (1852) 5 De G. & Sm. 723 [46 E.R.1316).

to pay debts, and to pay certain legacies. The house property was specifically devised. Clause 11 of the will is as follows : - '2S

"T direct my Trustees to stand possessed of the rest and residue of my trust estate in trust to sell realise and convert the same into money and after payment of my just debts funeral and testamentary expenses the probate and estate duties payable upon my estate to invest the proceeds thereof in securities authorised by law to Trustees - and to stand possessed of such investments in trust to accumulate the income therefrom during the lifetime of my son Wadya."

The clause contains a plain direction to convert residuary per- sonalty. It is a provision requiring the investment of the proceeds - of conversion for the purpose of producing income for the estate. The income from such investments is to be accumulated during the - lifetime of Wadya Michael. The provision in terms expressly applies only to the income of the investments made as the result of the con- version directed.

" Notwithstanding the directions to accumulate contained in - Clause 11 of this my Will I empower my Trustees if they in their absolute discretion think fit so to do to advance out of the income of my residuary trust estate during the lifetime of my son Wadya for the _ maintenance benefit and welfare of the persons hereinafter mentioned the following sums : -

(a) Such sum not exceeding Five pounds per week as they in their absolute discretion shall determine for my daughter- in-law Myrtle until her death ;

(b) Such sum not exceeding Three pounds per week as they in their absolute discretion shall determine for my grand- - daughter Roma for her life ;

(c) Such sum not exceeding Ten Pounds per week as they shall _ in their absolute discretion deem fit for my grandson Alec during the lifetime of 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 authorised by law to Trustees."

This clause deals with the whole of the income of the residuary trust estate, whether derived from investments in securities author- ized by law (see clause 11) or from other investments. The clause - contemplates a possible expenditure of £18 per week, with an addi- - tional sum which may be paid to Wadya. It is argued for the appellant that, in view of the character and extent of the assets ;

that she must have intended that the moneys from Assid 's estate should all be available to the trustees for disposition 4s income under the provisions of clause 11. On the other hand, it is out that the making of any " advances " under the clause is

pletely discretionary and that the amounts mentioned are not amounts but maximum amounts.

se 13 provides that, upon the death of her son Wadya, the s are to stand possessed of the residuary trust estate upon to pay £5 per week to a daughter-in-law Myrtle and the residue e income to a granddaughter Roma for life. Upon the death of the trustees are directed to stand possessed of the residuary rust estate, together with all accumulated income, upon trust for ich of the children of Roma as shall be living at the death of Roma if more than one, in equal shares, with a provision that if Roma ld die without leaving any issue surviving her, a grandson of the estatrix should receive the income during his lifetime, and that after

death his children should take, with ultimate provisions for the it of the grandson dying without leaving issue surviving him. The provisions contained in clause 13 operate only after the death of the son Wadya, that is, they become effective only when the t asset of the estate, namely Wadya's assigned interest in d Michael's estate, has disappeared. An argument has been upon these provisions to the effect that the elaborate Visions contained in clause 13 contemplated the existence of a ntial estate after the death of Wadya, showing that it was not led that the trustees should treat the whole of the income from d Michael's estate as available for distribution among those d for life. hus clause 12 is relied upon by the appellant to show an intention in his favour, and clause 13 is relied upon by the remaindermen ; showing an intention in their favour. Neither argument is con- ive, and in my opinion the Court must approach the case upon the that the testatrix has not clearly provided that, whether or not received from Assid Michael's estate were strictly income of her estate, they should be treated as being such income.

e 16 is as follows : - LT empower my Trustees to vary and transpose any investments by them and at any time to realise upon any part of my trust

hich the testatrix had when she died, the mention of such a sum H. ©. or A.

HIGH COURT estate and re-invest the proceeds of such realisation in any aie ments whatsoever that to my Trustees seem fit anything to the con- trary in this will notwithstanding without being responsible for any loss arising therefrom. I also empower my Trustees to retain my trust ' estate in the same investments in which it is invested at the date of my death." :

Under this clause the trustees may retain existing investments and _ may invest in any investment whatever without being responsible for _ loss. Such a provision does not entitle trustees to be reckless: Smethurst v. Hastings (1); In re Turner; Barker v. Ivimey (2). But it does give the trustees a power to retain the interest in Assid Michael's estate instead of selling it. ;

If the terms of the will show that the testatrix intended moneys received from Assid Michael's estate to be distributed under clause 12, effect must, of course, be given to that intention. But in my : opinion the will contains no positive specific direction that such - : moneys are to be available for such distribution. Can it, however, - be held that these moneys fall within the general term " the income _ of my residuary trust estate " in clause 12 of the will? The principal - contention for the appellant is that those moneys are such income, and that they may accordingly be applied for the maintenance &e. : of the persons named in that clause. The clause applies only " during the lifetime of my son Wadya," and the interest of Wadya in his father's estate ceases with his death. Thus, if all the moneys received by Mrs. Michael's trustees from Assid Michael's trustees are income as claimed, there may be nothing left for the beneficiaries - under clause 13 after Wadya's death.

In my opinion, the moneys received from the trustees of Assid Michael's estate, though income in their hands, are capital of Mrs. - Michael's estate. It is, I should think, obvious that, for purposes of probate duty, the right of Mrs. Michael to receive those moneys during the life of Wadya would have to be valued as at her death, and - that duty would have to be paid upon the then present value of the _ probable future payments. It would be strange if those payments - could then be treated, not as themselves constituting capital assets _ of the estate, but as income of capital assets. There is no capital asset which can be regarded as producing these moneys as income. - When the question was put to counsel " Of what capital asset are these moneys the income ?" the only reply was " Of the right to receive the moneys." It might as well be said that wages payable under an" ordinary contract of employment are income from a capital asset,

se the whole asset consists of the right to receive the moneys in jon. Ifa man owns £1,000 Government stock bearing interest, e stock is the capital and the interest is the income. If he has let s land to a tenant, he owns the reversion to which the rent is lent. The reversion is his capital asset and the rents are his me. If he owns shares, the shares are his capital and the divi- s are his income. But in the present case there is no capital owned by Mrs. Michael's trustees of which the moneys received from Assid Michael's estate can be regarded as the income. These

is a case which, in this respect, is exactly the same as In re yne (1), where Uthwatt J. said : " It is not possible to point to any perty of which the intestate was possessed when he died and to ate of the annual sums that they are income arising from that operty since the intestate's death. There was not and is not any

belonging to the intestate of which the annual payments are the

}), Cohen J. said that in such a case, where " the annual payments constitute the asset forming part of the testator's estate and not the

logous to terminable annuities and should be so treated. Such inuities were treated in Crawley v. Crawley (5) as wasting assets, io be sold, or treated as sold, only the income of the proceeds going to a life tenant. The rule established by this case was applied in

es which, it was suggested, deprived Crawley's Case (5) of author- y. Crawley's Case (5) appears to me to be sound in principle, gh the principle upon which it is based would not be applicable e an intention was shown in a will that the actual moneys ved from a wasting asset should go to a person interested for In the absence of such an intention, the application of the e in Howe v. Lord Dartmouth (6) which was made in Crawley's se (5) is ordinarily a fair and reasonable method of adjusting ests in wasting property as between life tenant and remainder-

"Tf then the moneys received from Assid Michael's estate are capital, what are the respective rights of those to whom the property is given n succession ?

(1) (1943) 169 L.T. 365. (4) (1945) 61 T.L.R., at p. 337. q a (1943) 169 L.T., at p. 366. (5) (1835) 7 Sim, 427 [58 E.R. 901}. (1945) 61 T.L.R. 334. (6) (1802) 7 Ves. 137 [32 E.R. 56).

namely, the right created by the contract to receive wages. In this H- ©. oF A.

As already stated, the interest of Mrs. Michael's estate in Assid . Michael's estate is plainly a wasting asset - it disappears with Wadya's life - and it is also a future interest - a right to payments in futuro. i

The rule in Howe v. Lord Dartmouth (1) requires a trustee to be impartial, not favouring a beneficiary who is interested for life at the expense of any one interested in remainder or vice versa. The rule says that, where residuary personalty is settled by will for the _ benefit of persons who are to enjoy it in succession, it is the duty of the trustees to convert into property of a permanent and income- bearing character those parts of it which are of a future or reversionary nature (in the interests of the tenant for life) and those parts of it which consist of wasting assets (in the interests of the persons. interested in remainder). Adjustment should prima facie be made between successive beneficiaries upon this basis, so that a tenant for life would be entitled only to receive, not the possibly very large but temporary income from a disappearing security, leaving perhaps nothing for a remainderman, but the income which he would have received if there had been a due conversion into authorized securities.

It is well settled that "the rule must be applied unless upon the fair construction of the will you find a sufficient indication of intention that it is not to be applied ; the burden in every case being upon the person who says the rule of the Court of Chancery ought not to be applied to the particular case " : Macdonald v. Irvine (2). Thus the intention of the testator is the important matter and the courts have been ready to exclude the application of the rule by discovering a contrary intention of the testator ; for example, some indication that the testator intended the beneficiary for life to have whatever - income might actually be produced by his estate. But this intention - must clearly appear in order to exclude the rule. I have already stated the reasons for my opinion that there is no specific direction in the will that moneys received from Assid Michael's estate are to be available to be treated as income of the estate of the testatrix. But it still may be the case that the will discloses an intention that par- ticular moneys should go to the tenant for life without any adjustment in favour of the remainderman. It is contended for the appellant that, in this case, the power to postpone conversion and to retain investments sufficiently discloses such an intention, so that the rule - in Howe v. Lord Dartmouth (1) is excluded. :

If there is no trust for conversion, but a power to retain the testator's property as at his decease or to sell it at the discretion of

(1) (1802) 7 Ves. 137 [32 E.R. 56). (2) (1878) 8 Ch. D. 101, at p. 124.

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

_ (1) (1880) 15 Ch. D. 74, at p. 77. (4) ne (28 at pp. 701, 702 (2) (1907) 1 Ch. 394. [39 E.R., at p. 1113).

• (3) (1833) 2 My. & K. 699 [39 E.R. (5) (i913) 2 Ch. 'sbe. or 1111). (6) (1915) 1 Ch, 187. (7) (1904) 2 Ch. 4.

Chaytor (1); and see Halsbury's Laws of England, 2nd ed., vol. 14, ; p. 370. ': In the will of Mrs. Michael there is an express direction to convert, - with a power to postpone conversion and a power to retain investments. In Jn re Inman (2) it was said by Neville J. that where _ there was a discretion to postpone conversion, the question which arose was whether the testator intended that the power to - postpone should be exercised for the benefit of the tenant for life, or _ merely for the more convenient realization of the estate. In the - former case the rule in Howe v. Lord Dartmouth (3) does not apply. - In the present case there is nothing to show in any decisive manner - whether the power to postpone was given for more convenient administration or for the benefit of the life tenant. The power is given in conjunction with powers to grant leases and to manage real - " estate, and would appear to be given merely for the more convenient management of the estate, without any particular regard to the ; possibly competing interests of any persons interested in the estate. No certain conclusion can be drawn as to the intention of the testator : :

from the existence of the power to postpone. As already stated, the onus is on those who seek to exclude the

application of the rule in Howe v. Lord Dartmouth (3). There is, in the present case, a definite direction to convert with power to post- - pone conversion and a power to retain existing investments. The . direction to convert requires the application of the rule, and the power to postpone and power to retain do not, under the authorities _ to which I have referred, exclude the application of the rule. There- fore, in my opinion, the rule in Howe v. Lord Dartmouth (3) should - be applied. The rule is not an absolute rule to be applied mechani- cally, and it may be modified to meet varying circumstances. In the present case the annual receipts derived from Assid Michael's - estate are very large as compared with any income that could be expected to be derived by way of interest upon the proceeds of a sale of the right to receive future payments during Wadya's life. Where the income is abnormally large and there cannot be immediate con- version without loss or damage to the estate the rule in In re Chester- field's (Earl) Trusts (4) may be applied. In the present case the rule _ in In re Chesterfield's (Earl) Trusts (4) appears to me to be fairer to the various interests concerned than that applied by the learned - Judge, and accordingly, in my opinion, the appeal should be dis- missed, but the order of the Supreme Court should be varied by substituting for the answer to Question 3 (b) the following : -

(3) (1802) 7 Ves, 137 [32 E.R. 56). (4) (1883) 24 Ch. D. 643.

tum per annum on the date of the death of Martha Michael , and accumulating at compound interest calculated at that with yearly rests, would, with the accumulations of interest, have produced, at the respective dates of receipt, the amounts ally received ; the aggregate of the sums so ascertained being ited as corpus of the estate of Martha Michael deceased, and pplied accordingly, and the residue being treated as income and ilable for distribution as set out in paragraph 12 of the Will."

Ricx J. This appeal is concerned with the administration of e estate of a testatrix, Martha Michael. Her husband had, by s will, given his residuary estate to his trustees upon trust to y the income to his wife for life, and after her death to his son 'adya for life, but his interest to fall into ultimate residue upon attempt to alienate, with ultimate remainders over. The survived the husband, Wadya's life interest in remainder was trated in her lifetime, and she bought it in the year 1927. her will made in 1939 (the year of her death), she directed her

es to convert the residue of her estate into money, to invest proceeds in securities authorized by law to trustees, and to possessed of such investments in trust to accumulate the income erefrom during Wadya's life, but with power, at their absolute seretion, to advance out of the income of residue during his life or their maintenance benefit and welfare certain small weekly sums to three named persons and such sum as they should in their absolute

of Wadya during his life. She directed her trustees to all income not so applied in securities authorized by law to Upon Wadya's death, the trustees were to hold the resi- y trust estate, together with all accumulated income, upon trusts for persons for life with remainders over. She empowered her trustees | postpone the conversion of her trust estate or any part thereof

By clause 16, she also empowered her trustees, inter alia,

ze upon any part of her trust estate and re-invest the pro- in any investments whatsoever that to them seemed fit any- g to the contrary in the will notwithstanding, and to retain her st estate in the same investments in which it was invested at her

from certain property worth about £4,000, the only property she possessed at her death, and only substantial source of e of her estate, was the life interest of her son Wadya under

ae By ascertaining the respective sums which, put out at Four per : ©. or A.

her husband's will, which had been acquired by her by purehi fell into possession when her own life interest terminated. income receivable by her estate in respect of this life interest a' about £2,500 a year.

The questions which arise for determination are whether paym received and receivable by the trustees in respect of Wadya's li interest since the death of the testatrix should be treated in administration of her estate as income or corpus of her residuat estate, or partly income and partly corpus. There is no e provision on the point in the will, and the questions must there be resolved by the implications of the relevant provisions of the

The first point to be noted is that income which a testator is entith to receive as assignee of an estate pur auter vie is income of residuary estate if it is not otherwise disposed of, and is therefore subject to any dispositions of the income of residue made by the will.

The next point is this. Where by will property is given in such way as to indicate that the testator must have intended it to be preserved in such a state as to admit of its being enjoyed by persons in succession, it is the duty of the personal representatives to git effect to this intention. Where it is given, not specifically b included in a general gift of residue, to tenants for life and remainder- men, and some of the property so included is of a wasting or residuary nature, or not in an authorized state of investment and therefore to this extent hazardous or perishable, the intention which I have mentioned is prima facie to be attributed to the testator and effect must be given to it. This is done by converting the property in question into money, investing it in authorized investments, and paying the income of these investments to the life tenant. Pending investment, he is entitled as from death to a reasonable rate of interest _ calculated upon the value of the property. The rule as to thi presumption and the duty of giving effect to it is known as the Rule in Howe v. Lord Dartmouth (1). But the presumption is only prima facie. It cannot exist at all unless there is something capable giving rise to it, and, if there is, it may be rebutted by indications contrary intention. Thus, if the property is given specifically, th indicates that it is intended to be enjoyed i in specie. It is for this reason that there is no such presumption in the case of realty. All gifts of realty once were, and for some purposes still are, regarded as specific. Again, if there is no clear indication of intention of enjoy- ment in succession, as where the gift is not for life with remainders over but vested subject to divesting, the presumption is weak if not negatived. And it may be negatived, in cases in which it would

ith it. Authorities are very numerous, and I do not propose to

mine them. To treat all as having been correctly decided, and to be necessary stepping stones, would make the path to a correct solution as difficult as Christian's progress through the Slough of ond, and likely to lead to a similar result. What is here neces- y is to ascertain the testatrix's intention so far as this is discover- from the particular will now before us. The beneficial disposi- ons of her residue call for the accumulation of the income of residue 'ing a life and then the holding of residue in trust for life tenants h remainders over. Such dispositions give rise prima facie to the mption of intention identified as the Rule in Howe v. Lord Dart- (1), and this presumption is reinforced by the initial express ection for conversion and investment. The mere power to post- e conversion would not rebut the presumption. Of itself, it is

e in the same investments in which it is invested at the testa- 's death, contained in clause 16 which from its language is evi- ntly intended to be an overriding provision, not only, in the nt will, neutralizes the trust for conversion and reduces it to level of a power, but expressly negatives any such duty to con- as would otherwise arise by virtue of the presumption, and efore negatives the presumption. When it is seen that, during e period of accumulation, the trustees are invested with a dis- cretion which enables them to apply the whole income of residue the benefit of the son Wadya, and that the interest pur auter vie the only substantially income-producing item in her residuary te at her death, I think that to treat the Rule in Howe v. Lord (1), or that Rule supplemented by Jn re Chesterfield's

| conversion of the interest pur auter vie which would deprive them the power to retain, expressly conferred upon them by clause 16 'the will, and the uncontrolled discretion to make advances out of

itions from the operation of the Rule in Howe v. Lord Dart- (1), is not in my opinion justified by the language of the will, and would be tantamount to beginning with the Rule (1) (1802) 7 Ves, 137 (32 E.R. 56], (2) (1883) 24 Ch. D. 643.

otherwise prevail, by any indication of intention which is inconsistent 1. ©. oF A.

and endeavouring to fit the will to the Rule, instead of beginning with the will and seeing whether it necessitates recourse to the Rule, I am of opinion, therefore, that the first question in the originatir summons should be answered in the affirmative, and Questions Q 3 (a) in the negative. 4

Srarke J. Assid Michael by his will gave devised and bequeathed - his real and personal estate, subject to a devise of certain property at Mentone, unto his trustees upon trust to pay the income therefrom unto his wife for life and from and after her death to pay the income - to his son Wadya for life. During the lifetime of his mother the estate of Wadya was sequestrated in bankruptey and in the year 1927 a she acquired by assignment from the trustee in bankruptcy all the right, title and interest of Wadya under the will and in the estate of his father, Assid Michael. '.

The mother died on 18th July 1939 leaving a will whereby she devised and bequeathed the whole of her real and the residue of her personal estate (called her trust estate) unto trustees to hold subject - to and upon certain trusts, which it is unnecessary to state at length, but she directed her trustees to stand possessed of the rest and residue of her trust estate in trust to sell, realize and convert the same into money and after payment of her just debts, funeral and testamentary expenses, probate and estate duties, to invest the proceeds in securi- ties authorized by law to trustees and to stand possessed of such investments in trust to accumulate the income therefrom during the - lifetime of her son Wadya and upon the death of her granddaughter - to stand possessed of her residuary trust estate together with all - accumulated income upon trust for her children with gifts over in certain events. Notwithstanding the directions to accumulate - contained in her will the testatrix empowered her trustees in their absolute discretion during the lifetime of Wadya to advance out of the income of her residuary estate for the maintenance benefit and - welfare of her daughter-in-law and grandchildren various weekly sums not exceeding certain fixed amounts and also for her son such sum as her trustees in their absolute and uncontrolled discretion - thought fit for the maintenance and benefit of her son during his life. And she directed her trustees to invest all income not applied by them in securities authorized by law to trustees. The son, I understand, - is still alive, but in the event of his death the testatrix directed her trustees to pay out of the income of her residuary estate a certain sum per week for her daughter-in-law and to pay the residue of the _ income to her granddaughter for life. And she empowered her -

The interest of her son Wadya in his father's estate, which the atrix had acquired, was the most valuable asset in her estate. The income which she in her lifetime received under her husband's will amounted approximately to £2,500 per annum. After her death he trustees of her husband's will paid to her trustees the income

ly mentioned. The amount was considerable and a sub- tantial part was applied or advanced towards the maintenance, nefit and welfare of the persons mentioned in the testatrix's will. without that income the provisions of the testatrix's will for purposes could not have been carried out in the manner templated by her. It is plain enough that the sum paid to the of the testatrix's estate by the trustees of her husband's was the income given to Wadya under his father's will. It payable and it was received as income. But the duty of the itrix's trustees in respect of those moneys depends upon her will. income and the income producing interest were part of the trust estate " the rest and residue of which she directed eee to sell, realize and convert into money and after pay- ent of debts &c. to invest the proceeds in securities authorized by aw to trustees and to stand possessed of such investments upon the trusts already mentioned.

Now " where a residue is given upon trust for sale and investment, the income is then given to a tenant for life, the tenant for life is, in the absence of proper directions, only entitled - at any rate, so as personalty is concerned - to such income as the estate would roduce when converted and invested in accordance with the direc- of the will" (See Theobald on Wills, 9th ed. (1939), p. 447). however, there is no tenant for life, but a trust for accumulation g the life of the testatrix's son Wadya with discretionary powers make advances out of the income of her residuary trust estate for Purposes mentioned in her will and upon the death of her grand- iter upon trust as to her residuary estate together with all umulations for her granddaughter's children with gifts over in ain events. et it be assumed that a similar rule is prima facie applicable to ich a trust. Still the testatrix empowers her trustees to retain her st estate, which as already mentioned, includes the income and the me producing interest which she acquired under the assignment n the trustees in bankruptcy of Wadya's estate in the same invest- in which it was invested at the date of her death. A power

'trustees to retain her trust estate in the same investments in which H- ©. or A.

"to postpone a sale or to retain securities unconverted will not the rights of tenant for life and remainderman." But it is " tion of construction in each case whether the power to postp retain is merely ancillary to the trust for conversion or is a po continue or retain permanently. In the latter case the infe that it is for the benefit of the tenant for life, and if what is given t him is the income of the converted and unconverted property ort income of the securities representing the estate, he will be entitled to the income of securities retained " (Theobald on Wills, 9th ed. ( (1939), pp. 448-449). In my opinion the power given to the testatrix's trustees in the present case authorizes them to retain her estate in the same state as they found it at her death for an indefinite period, not as ancillary to the trust for conversion and sale, but for th maintenance, benefit and welfare of her daughter-in-law, her g children and her son during his lifetime. Consequently the moneys income actually received by the testatrix's trustees from the trust of her husband's estate may be applied for those purposes in manner provided in clause 12 of her will. The result is that the appeal should be allowed.

Drxon J. The chief asset of the estate of the testatrix is the life' interest of her son Wadya in his father's estate. She had acquired -

into possession when she died and her prior life interest, upon which her son's was expectant, came to an end.

The limitations of her will involve successive interests in residue, and the question upon the appeal is how the revenues her estate

treated for the purpose of the successive interests. She has limited her residue to life tenant and remainderman. What she has done is to direct an accumulation of income during the life of her son Wadya but, notwithstanding that accumulation, to empower her trustees in their discretion to make certain advances out of the income of residue during her son's life for the maintenance, benefit - and welfare of the persons she names. As might be expected, one object of the power is her bankrupt son's wife, but in her case the - amount is limited by a weekly maximum. Her son is another object, but for him no maximum is fixed. She had two grandchildren and they, too, are objects of the power of advancement, but subject weekly maxima.

The terminating nature of Wadya's life interest whence so muc of the revenues of the estate arises has been considered to raise a q tion whether there ought not to be an adjustment for the purpose

The will contains express directions to convert, an express power to postpone conversion for such period as the trustees think fit, and an express power to retain the trust estate in the investments in which 'it was invested at the date of the death of the testatrix.

'The case is treated as if it were one in which personalty is bequeathed upon trust to convert and the proceeds of conversion to be held for life tenant and remainderman with the consequence there must be an adjustment between them in respect of such terminating or wasting a$set as the assigned life interest of Wadya er his father's will. It does not appear that Wadya's life interest s personalty, and, in any case, I doubt whether the rule of adminis- tration invoked is applicable where there is no life owner and nothing more than a direction during a named life to accumulate income, ubject to discretionary powers of advancement, with future limita- of corpus, including the accumulations, on the dropping of the

$ ive limitations of such a character, a preliminary question s taised, namely, whether the periodical sums derived by the estate of the testatrix from the estate of her husband under the assignment of her son Wadya's life interest therein ought not to be regarded as eived by her estate as capital? If in some way they bear the stamp of capital as they come into her estate, then, it is said, whatever the interpretation of the trusts of income, the only contribution the sums n be called upon to make to income would be by an adjustment upon the footing that future payments of capital are falling in dically. In other words, the case would not be one for-applying tule to protect the remainderman from the consequences of delay converting an income-bearing asset of a wasting description, but e for insuring that the life tenant obtains some benefit in respect future receipts of capital.

1am not able to agree in the view that, in the estate of the testa- , the receipts from the assigned life interest of Wadya in his "s estate have the inherent character of capital. To my mind Wadya's life interest is income-producing property. The income it is what the tenant for life or his assigns are entitled to eive in respect of the interest for life under the will creating it.

income, so they are received as income by his assigns. It may be e that some particular assign is bound upon receiving them to apply them as capital. But that is because of his special situation,

aining the income to be accumulated or applied under the power #1. ©. oF A.

not because of the character of the money as it comes to him,

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

ment (5), Cohen J. appears to me rather to treat Crawley v. Crawley (1) and Re Whitehead (6) as proceeding upon the intrinsic nature of the moneys coming into the estate and not upon the effect on thi application of the provision of the will, which is clearly a mistake, at all events, in the latter case. However correct his actual order may have been, it is not easy to follow his freatment of the author- 4 ities. In particular, it does not appear to me at all strange

(1) (1835) 7 Sim. 427 (58 E.R. 901}. (4) (1943) 169 L.T. 365. (2) (1894) 1 Ch, 678, at p. 683. (5) (1945) 61 T.L.R., at pp. 326-338. (3) (1943) Ch. 377. (6) (1894) 1 Ch. 678.

ither Crawley v. Crawley (1) nor In re Whitehead (2) were cited in H. ©. oF A.

In re Sherry (3), to the facts of which I should not regard them as 194°

plicable. Indeed, I think that in In re Sherry (3), Warrington J., poco

d apparently counsel before him, took it as going without saying v

at distributions of income in respect of an estate pur autre vie ging to a deceased person bore their character of income in Dixon J.

hat the estate receives as income from a wasting asset. It is not a in which the rule is to be applied in the interests of persons in the

wable over an uncertain term after the deceased's death. Regarding the appeal in this way, the question becomes one of erpretation depending on the presence in or absence from the will sufficient indications of an intention that the actual income of the converted estate should be used for the accumulation and for the power of making advances. It is in this way that Martin J. treated the case. Although I fully concur in his Honour's approach to the matter, I find myself unable to agree in his conclusion upon the I shall not restate the material provisions of the instrument. ey are referred to in other judgments. It will be enough to m the chief considerations which influence me. But, before so, it may be useful to point out that the basal reason for the e, the applicability or inapplicability of which is in question, is prima facie, when conversion is expressly or impliedly required, e tenant for life should not, pending conversion, receive more than e income which he might expect to derive if conversion had taken Accordingly, you begin with the trust for conversion and look indications which confirm or rebut the inference that it was on the is of conversion that the tenant for life was intended to enjoy . A power to postpone conversion for the business reason of abling the trustees to sell to better advantage will not weaken the ence. But a power to postpone may be so framed as to make it ear that actual or notional conversion was not the root assumption on which successive interests were limited. It is for this reason that erences are made in the cases to postponement for the benefit of life tenant. Again, a power to retain the form of investment in h the estate is found may be so framed as to amount to making itan authorized investment just as if conversion had taken place and at would be a strong indication.

(1) (1835) 7 Sim, 427 [58 E.R. 901]. (3) (1913) 2 Ch. 508. ») (1894) 1 Ch. 678.

'The features of the present case which have influenced me are the following : - : (1) There is here an express power of postponement of conve

It covers permanent retention and appears equivalent to constituting existing forms of investment authorized investments. 7 (3) The words " my trust estate" are defined as the whole of tl real and the residue (that is, after excluding furniture é&c.) of th personal estate. The direction or power to advance is " out of income of my residuary trust estate," an expression covering incoi of unconverted assets. The direction to accumulate consists of a trust to convert, " my trust estate," to invest the proceeds in authorized securities, to stand possessed of the investments on trust to accumulate income. The difference between the way the latter is expressed and the form weakens the inference to be drawn from the terms of the power to advance, but it is clear that they must refer to the same class of income and the more probable interpretation is to treat the language" of that power as showing the real intention. ; (4) The power to advance named maximum weekly sums which could not be met unless there was a very substantial income and th is without taking into account advances to Wadya, or providing surplus for accumulation. The application of the rule for adjust would make the income insufficient for the purpose of the power. - (5) The trusts after the death of Wadya, when compared wil those to operate during his lifetime, suggest that some reason mi exist for the testatrix at that stage giving substitutional intere: in income to her grandchildren where before they had conte poraneous interests under the power of advancement. Such a reason is supplied by the supposition that she knew the income her estate would be greatly diminished by Wadya's death. (6) The assigned interest of Wadya is by far the most importa asset of her estate.

weight in showing that the will of the testatrix proceeds on the that the advancements and the accumulations are to be found out the actual income of the residuary estate, whether converted or n

of the rule requiring adjustment between tenant for life and ren derman of convertible residuary personalty. I think the appeal should be allowed.

n interest for life which her son took under her husband's will. e testatrix had acquired this interest in her lifetime. It is not authorized security and it is an interest which is wearing out. will of the testatrix contains a trust for the conversion of the ue, called "the rest and residue of my trust estate," and the ment of the proceeds in authorized securities. There is a tion to accumulate the income therefrom during her son's ime. Besides, there is an express power given to the trustees postpone conversion of " my trust estate or any part thereof for ch period as they shall in their absolute discretion think fit." e question is how much, if any, of the moneys received by the es of the testatrix on account of her son's life interest is avail- to carry out the trusts with respect to income in clause 12. I 0 not repeat its provisions. These trusts are to "' advance out of the come of my residuary estate." In my opinion the entire receipts n account of such life interest are income of the residuary estate of testatrix and are available in specie in the hands of the trustees to carry out those trusts. The question whether those receipts are rholly in the nature of income is open to different answers upon the uithorities cited. It seems to me that upon the true construction of this will the words " the income of my residuary estate" apply to those receipts and they are entirely such income for the purposes of this will. The familiar analogy of 'the tree and its fruit is, I think, in point here: the interest acquired by the testatrix is com- parable with the tree and the moneys received on account are com- able with the fruit of that tree. I am also of the opinion that ling conversion the trustees are under the will empowered

apply in specie the entire moneys received on account of this int in carrying out the trusts which are declared by the testatrix respect to the income of her residuary estate. The contrary w is that it is necessary to apply the rule in Howe v. Lord Dart- (1), to adjust the rights of the persons first entitled to share the income of the residuary estate and those entitled in succession them. If this rule applied there would be available to the trustees

more than a sum equivalent to interest at a rate allowed by the 0 on the capital value of the life interest, for the purpose of dis- g the above-mentioned trusts of the income of the residuary e. Referring to the rule in Howe v. Lord Dartmouth (1), North J. ved in In re Pitcairn ; Brandreth v. Colvin (2) of what Romilly said about the rule in Morgan v. Morgan (3) : " This rule has been.

4 }) (1802) 7 Ves. 137 [32 E.R. 56]. (3) (1851) 14 Bea. 72 [51 E.R. 214]. (2) (1896) 2 Ch. 199.

_ McTiernan J. The residue of the estate of the testatrix includes 1. 0: or A

• whether the testator has, in this will, expressed his intention, that

since affirmed, as often as it has been referred to, and is unquestion- ably the law. But the testator may take the case of any particular bequest out of this rule ; and the effect of the latter cases has been to allow small indications of intention to prevent the application of the - tule. The question here, as in similar cases, is one of construction, :

this rule shall not apply to this particular case. It is urged by the - petitioners that the burden of proof does not lie upon them more - than on the respondents. and that being a question of construction, it is for the Court to look into the will and discover the testator's - real meaning. In one sense, this is certainly true; but still, in my - opinion, the rule of law is that, unless there can be gathered from the will some expression of intention that the property is to be enjoyed - in specie, the rule in Howe v. Lord Dartmouth (1) is to prevail. Itis therefore incumbent on the persons contesting the application of that - rule, and on the Court which forbids that application, to point out the words in the will which exclude it, and if this cannot be done, the rule must apply. The reported decisions on the subject are useful, as they form a guide to enable the Court to ascertain what directions - contained in a will are properly considered to be an expression by the testator of his intention that this rule is not to apply " (2).

In the present case the testatrix has given authority to her trustees to make the advances specified in clause 12 out of the income of her _ residuary estate. These dispositions of this income are intended to - take effect during the postponement of the conversion of the residue, if the trustees in the exercise of their discretion postpone conversion. Under clause 12 the trustees are authorized to apply in specie the income of her son's life interest which is income of the residuary estate in order to make the advances of income specified in that clause. It follows, I think, that, although the son's life interest is a wasting asset and an unauthorized investment, the question of - applying the rule in Howe v. Lord Dartmouth (1) for the purpose of adjusting the rights of persons interested in the income of the son's- life estate is one that could not arise. Furthermore, it is a fair inference from the terms of the will that the testatrix gave power to the trustees to postpone conversion for the benefit of her son and his wife and children. If it were necessary to adopt either In re Inman (3) or In re Chaytor (4) as a guide to the interpretation of this will, I should apply the former case. I think that the questions should be answered: (1) Yes; (2) No; (3) (a) No. The appeal should, in my opinion, be allowed and the costs of all parties be paid. out of the estate ; the trustees' costs as between solicitor and client.

(1) (1802) 7 Ves. 137 [32 E.R. 56). (3) (1915) 1 Ch, 187. (2) (1896) 2 Ch., at pp. 204, 205. (4) (1905) 1 Ch, 233.

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

_ WiniiaMs J. This appeal relates to the construction of the will of H: C. or A.

H.C. or A. providing for the interest on the mortgages and other outgoi

paid to the testatrix. The net rents amounted to £2,570 per annum and were her sole source of income.

Since the date of death the trustees of the will of the testatrix have received from the trustees of the husband's estate, in respect of Wadya's life interest, the sum of £13,739, of which they have applied a substantial part towards the purposes set out in paragraph 12, and - the matter for determination is whether the trustees were authorized by the will to do so.

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

(1) (1802) 7 Ves. 137 (32 E.R. 56). (3) (1894) 1 Ch, 678. (2) (1835) 7 Sim, 427 [58 E.R. 901).

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

) 185) 2 My. & K. 699 [39 E.R. (6) (1802) 7 Ves. 137 [32 E.R. 56). 111}. (7) (1894) 1 Ch. 678. 2) W.N. (Eng.) 188. (8) (1894) 1 Ch., at p. 684. 4 (9) (1894) 1 Ch,, at p. 685. (10) (1943) 169 LT, 365. 5) (1835) 7 Sim. 427 (58 E.R. 901]. (11) (1945) 61 T.L.R. 334,

estate of the testatrix any more than the rents of a leasehold H- ©. oF A.

"income derived from my estate." In Hey's Case (1) the will, created a life estate and remainders, contained a trust for com with a power to postpone conversion and directed that

Dartmouth (2) and Allhusen v. Whittel (3). During the life of th tenant for life there was a resulting trust to the estate of the testa of certain income of the settlement. On the question whether income was received by the trustees of the will as income or capital his Lordship refused to follow In re O'Hagan (4) and In re She Sherry v. Sherry (5) and did not refer to Alcock v. Sloper (6), which does not appear to have been cited. He purported to follow Crawley vy. Crawley (7) and In re Whitehead (8) as authorities that such income when so received was a payment of capital. In my opinion, for the reasons already stated, Zn re Whitehead (8) is not, as Lordship considered, opposed to but is consistent with Alcock vy. Sloper (6), In re O'Hagan (4) and In re Sherry ; Sherry v. Sherry (5), and Hey's Case (1) is not one which we ought to follow.

The will of the testatrix can be divided into two periods of tin

net proceeds in trust investments, and to stand possessed of the investments in trust to accumulate the income. There is also pi for the trustees to postpone conversion and power to retain the tr estate in the same investments in which it was invested at the dat of death. The trust to accumulate read completely literally wou appear only to refer to the income of authorized investments in the trustees had invested the proceeds of conversion. On this con- struction there is no express direction to accumulate the income of investments in which the trust estate was invested at the date death. But paragraph 11 relates to the whole residuary estate the trust to convert and invest the proceeds of conversion must | read in conjunction with the provisions for postponement a retention. So read the direction to accumulate refers to the whole income of residue whether derived from the investment of proceeds of conversion or from retained investments. 7

This construction is assisted by paragraph 12. It is open Hy argument that the words in this paragraph " income of my residt estate" refer to two categories of income, namely income of

(1) (1945) 61 T.L.R. 334, (6) (1833) 2 My. & K. 699 [39 ER. (2) (1802) 7 Ves. 137 [32 E.R. 56). 11}.

(3) (1867) L.R. 4 Eq. 295. (7) (1835) 7 Sim, 427 [58 E.R. 901}. (4) (1932) W.N, (Eng.) 188. (8) (1894) 1 Ch. 678.

accumulated on the strict literal reading of paragraph 11 and income as to which on this reading there is no express trust for umulation. But the natural grammatical construction of the in the context of the paragraph as a whole is, I think, that the referred to is the same as that directed to be accumulated in ph 11. This construction is also assisted by the words " or umulations as aforesaid " in paragraph 16 because these accumu- ns are the accumulations under the express trust, and when the s was providing that residue should include income accumu- ed during Wadya's lifetime it would be most unlikely that she did intend to refer to the whole of the income of residue not applied nder the discretionary trust, but intended to refer only to part of income, namely, the income of the proceeds of conversion invested in authorized investments not applied under this trust, and to omit the income received from retained investments and not so applied but accumulated (up to a period of 21 years) under an implied

a. the language of the will is read in the light of the cireum- tan it becomes even more apparent that this is the correct s ion. The asset of overshadowing value in the estate the testatrix is Wadya's life interest. The first period (although accumulation could not in law exceed 21 years) is made con- ninous with the continuance of this interest ; and discretionary payments up to but not exceeding £18 and in addition an undefined n to be paid to Wadya are authorized out of the income of the The testatrix could hardly have intended that such an would be sold, so that, unless this was the income intended to be accumulated (and there could not have been any other income th accumulating), little effect could have been given to this on for many years after her death, and presumably the did not intend that Wadya and his wife and children should ve in the meantime. 'here is, therefore, an express trust to accumulate the whole neome of residue however invested during Wadya's lifetime. As the payments made in respect of Wadya's life interest are income they re within the trust for accumulation, and therefore part of the income mt of which the trustees can make the distributions authorized by aph 12. In these circumstances no room is left for the appli- of the rule in Howe v. Lord Dartmouth (1) in any of its branches, assuming (and on this point I express no opinion) that the rule s to a case where the contest does not arise between life

tment of the proceeds of conversion as the only income directed H- ©: oF A.

tenants and remaindermen but between the right of the during the life of a person to make discretionary payments out o income of residue and those entitled to residue after his where the income although terminable consists of rents (a fa known to his Honour).

After Wadya's death the estate is given to life tenants and dermen. At this stage the conventional rules relating to unat ized investments as between life tenants and remaindermen apply but it would be difficult to find an unauthorized inve in face of the extraordinarily wide scope of paragraph 16. Cf. Tek Keong v. Ch'ng Joo Tuan Neoh (1). But we are not conce with this period.

Appeal allowed. Order of Supreme Court varied by st i out the answers to questions 1, 2, 3 (a) and 3 (b), and substituting the following answers : - 1l. Yes. 2. 3. (a) No. Costs of all parties of appeal to be paid o of the corpus of the estate, those of the trustees as bet solicitor and client. Order to lie in office until co of Myrtle Michael to be bound by this order is filed. -

Solicitors for the appellant, Stewart & Dimelow. Solicitors for the trustees, Corr & Corr. Solicitor for the respondent Fakhry, K. C. Rankin.