Miskelly v Arnheim

Statute Law (Miscellaneous Provisions) Act (No 2) 2007 LEGISLATION CITED : Succession Act 2006 s 27, Schedule 1 cl 3 Wills, Probate and Administration Act 1898 s 29A

CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria (2005) 224 CLR 98 Mortensen and Eassie v State of New South Wales NSWCA 12 December 1991 unreported Rawack v Spicer [2002] NSWSC 849 Re Estate of Max Frederick Dippert [2001] NSWSC 167 CASES CITED : Re estate of Spinks; Appln of Mortensen and Eassie SCNSW 22 August 1990 unreported Robertson v Allen [2003] NSWSC 848 Saunders v Vautier (1841) 4 Beav 115; 49 ER 282; affd (1841) Cr E Ph 240; 41 ER 482 Sir Moses Montefiore Jewish Home v Howell and Co (No 7) Pty Ltd [1984] 2 NSWLR 406 Trimmer v Lax - estate of M A Fresen NSWSC 9 May 1997 unreported

TEXTS CITED : Michael S Willmott SC, "The Rectification of Wills", Succession Law Conference hosted by the Law Society of South Australia, 18 - 19 October 2007

COUNSEL : N A Cotman SC and K G Odgers (Ps) M S Willmott SC and E Elbourne (Ds)

SOLICITORS : Brown & Partners (Ps) Michael C Smith (Ds)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

5023/07 ROWENA KAYE MISKELLY & ANOR v RICHARD THROSBY ARNHEIM & ORS JUDGMENT 1 HIS HONOUR: In 2005 Norman Miskelly was aged about 70. He died on 1 November 2005 leaving a will dated 18 April 2005 of which probate was granted to his three executors, the defendants, on 13 February 2006. The three executors were professional advisers of the testator. The plaintiff left two children, both being children of his first marriage. They are the plaintiffs. The elder, Rowena, was 38 years old in 2005 and is now 41 and the younger, Ashley, was 37 and is now 40. They had and have no children. 2 In his will after making provision for his second wife, Margaret Jean, and leaving a legacy of $500,000 to each of the plaintiffs, the testator created trusts for the plaintiffs. The amounts that will fall into those trusts are substantial. By clause 4 of the will the residue of his estate is to be divided into equal parts and dealt with in accordance with clauses 5 and 6. There is a proviso to clause 4 that: "If all the beneficiaries of a particular trust established later in this will pre-decease me then the amount which would have been held pursuant to such trust is to be added to the other trusts established in this will." 3 Clause 5 directs a trust for the first plaintiff and clause 6 a trust for the second plaintiff; they are in substantially identical terms. I set out the relevant provisions of clause 5: " I DIRECT that a trust be created for my daughter ROWENA KAYE MISKELLY and my daughter's children, with the part of my estate calculated in accordance with Clause 4 of this will shall be held by my Executors on trust ('Trust No 1') for those of my daughter ROWENA KAYE MISKELLY and the children of my said daughter who survive me by thirty (30) days ('Trust No 1 beneficiaries').

5.1 My Trustees shall pay all or part of the income and all or part of the capital of the trust fund of Trust No 1 to any one or more of Trust No 1 Beneficiaries in the shares and amounts and at the times my Trustees in their discretion think fit without any obligation to make payments for all of the Trust No 1 Beneficiaries or to ensure equality among those to whom payments are made.

5.2 With regard to any net income of the Trust fund not expended or distributed under this paragraph in any year of income ('the surplus'), my Trustees shall either allocate all or any part of the surplus among such of the Trust No 1 Beneficiaries as my Executors in their absolute discretion decide, or accumulate all or any part of such surplus as part of the capital of Trust No 1.

5.3 In carrying out their responsibilities under this Clause of this will my Trustees shall be required to review the needs of the Trust No 1 Beneficiaries at least every six (6) months and shall be required to consult with any immediate care giver of any of the Trust No 1 Beneficiaries as they decide.

5.4 In administering the Trust created by this Clause, my Trustees shall have all the powers necessary to carry out their responsibilities under clause 6, but shall otherwise administer the Trusts in accordance with the Trustee Act as amended pursuant to the terms of this will." 4 In their summons the plaintiffs make certain claims that can be determined only after the cross claim by the defendants for rectification is determined. I therefore ordered on 22 September 2008 that all questions relating to the cross claim for rectification be determined separately from and prior to other questions in the proceedings. I proceed to determine the separate questions thus posed for determination. The defendants claim to have the will rectified by the deletion of the words "who survive me by thirty (30) days" from each of clauses 5 and 6 of the will. This would effect a radical change from a situation where the class of beneficiaries of each trust is closed, because each of the plaintiffs has no children at the testator's death, to one where the class remains open because of the possibility of the birth of future grandchildren. 5 Rectification is sought under s 29A of the Wills, Probate and Administration Act 1898. This section has now been repealed (and the Act renamed) by the Succession Act 2006 ("the SA"), but remains applicable where the death of the testator occurred before the commencement of the SA on 1 March 2008: see SA Schedule 1 cl 3 as amended by the Statute Law (Miscellaneous Provisions) Act (No 2) 2007. 6 Section 29A provides: " (1) If the Court is satisfied that a will is so expressed that it fails to carry out the testator's intentions, it may order that the will be rectified so as to carry out the testator's intention." 7 There is now a different provision for rectification in s 27 of the SA. A conspectus of the history relating to the rectification of wills is given in a paper by Michael S Willmott SC, which was delivered recently in Adelaide at a conference relating to uniform laws: "The Rectification of Wills", Succession Law Conference hosted by the Law Society of South Australia, 18 - 19 October 2007. 8 The criterion which enlivens the jurisdiction conferred by s 29A is that the will is so expressed that it fails to carry out the testator's intentions. The defendants' case is that the evidence shows that it was the testator's intention that the trusts be for the benefit of all the testator's grandchildren, whether or not born before his death. The evidence essentially is evidence of communications between the testator and the second defendant, who is the solicitor who drafted the will. Those conversations must be viewed against the following background. 9 There was an earlier will made on 23 May 2003. It also provided a trust for each of the plaintiffs. Under the provisions of that will the grandchildren were not primary beneficiaries of the trusts for their parents, but were to take in substitution for a parent who predeceased the testator. Again it is plain that in that gift only grandchildren born before the testator's death would take. 10 So far as the new will is concerned, there were numerous conversations between Mr Gray, a life long friend of the testator, and the testator himself, who demonstrated considerable indecision concerning many matters. Having said that, it is plain that the testator was a man of some financial sophistication and considerable business knowledge who, through his investments, had accumulated a considerable fortune. 11 Mr Gray deposed that on 6 December 2004 he received a telephone call from the testator. He said: "Mr Miskelly said words to the effect of:

'I want to create a trust for Ashley and Ashley's children and Rowena and her children. The main reason for the trusts is that I have concerns about both children's ability to manage a large inheritance.

Rowena needs to be protected from her current boyfriend who has already got her to invest in projects which have lost money. I also feel it necessary to protect Ashley who is not money wise and could be taken advantage of.'" 12 Mr Gray deposed that he had a further telephone conversation with the testator on 15 December 2004 and that in the course of that conversation: "I said to Mr Miskelly -

'Norman, what about if there are no children and one of the children dies while the trusts are in place? What is to happen to that trust fund?

Later in the same conversation Mr Gray deposed: "He then said words to the effect of:

'It's my money, I worked hard for it, I'll decide what's to be done with it. I want to protect them, especially if a marriage or a relationship fails and I want to make sure that their mother doesn't get her hands on my money.'" 13 On 22 December 2004 Mr Gray sent a draft will to the testator. It is important to note that the words now sought to be removed from the will were already in place in that draft will. 14 On 28 January 2005 Mr Gray had a conversation for just over two hours with the testator concerning the draft will. Obviously that canvassed the draft will in detail and there was discussion about various questions relating to the will which it was apparent from earlier conversations were in play between Mr Gray and the testator. Mr Gray deposed: "I can recall I went through clauses 4.3, 4.4, 4.5, 4.6 and 4.7 and discussed the concept of a discretionary trust as to capital and income and that the allocation of income and/or capital was at the discretion of the trustees.

I don't have any specific recollection of any conversation about those clauses or those for Ashley's trust ... on reaching clause 6, which was to be deleted, Mr Miskelly once again stated that although his children, at this time, did not have any children, he saw the trust as being not only for his children but also for his grandchildren." 15 It is notable that there is no suggestion in the evidence that there was any discussion either at this conference or any other time about the ambit of the expression "grandchildren" and whether grandchildren born after his death were or were not to be included as beneficiaries of the trusts. 16 On 31 January 2005 the testator telephoned Mr Gray. It was at that time that he nominated the figure of $500,000 for each of the legacies. (Mr Gray had considered the testator's earlier specification of $50,000 totally inadequate in view of the size of the estate.) Mr Gray's evidence is: "I then said words to the effect of:

'That seems to be an appropriate figure. However, what are you going to do about residue for each trust if there are no children and if either Ashley or Rowena should die?'

'I'm still thinking about that.'" 17 A second draft of the will was sent in February 2003. It still contained the subject words. 18 Mr Gray received a further telephone call from Mr Miskelly on 8 April 2005. In that conversation Mr Gray said: "I said words to the effect of:

'The power of attorney is ready to be signed, the will, in my view, is incomplete. I know that you want the trusts to extend, not only to Ashley and Rowena, but also their children and, of course, at this time, as I understand it, neither of them have any children.'

'I'm going back to the previous question of residue. Have you decided what is to happen if the children have no children and one of them should die or both should die, while the trusts are in place. As I told you before, this would result in intestacy.'

'I'm not ready to make that decision. I need to give it more thought, just leave the trusts as they are for the moment.'" 19 That was his last word on the subject before the will was signed on 18 April 2005. 20 So far as the law is concerned, there is no doubt that the intentions of the testator must be examined as at the date of the will, not the date of death: Re estate of Spinks; Appln of Mortensen and Eassie SCNSW 22 August 1990 unreported per Needham J; Rawack v Spicer [2002] NSWSC 849 per Campbell J (as his Honour then was) at [27] - [28]. 21 As to the basis of the jurisdiction to rectify a will, Needham J said in Re estate of Spinks: "Rectification, in equity, is available for mistakes, not for lack of vision or perception or knowledge - cf Tucker v Bennett 38 Ch D 1 at pp 12-13, 16, Maralinga Pty Ltd v Major Enterprises Pty Ltd 128 CLR 336." 22 An appeal from Needham J was overruled by the Court of Appeal in Mortensen and Eassie v State of New South Wales NSWCA 12 December 1991 unreported. In delivering the judgment of the Court of Appeal Sheller JA (with whom Mahoney and Meagher JJA agreed) said: "The problem faced however by the applicants, is that the Court's discretion, assuming it is satisfied that the will is so expressed that it fails to carry out the testator's intentions, is limited to rectifying the will in such a manner 'as to carry out the testator's intention.' There is nothing in the evidence which indicates what Mrs Spinks' intention was in the event of a failure of the gift to any one of the beneficiaries or for that matter to all of them. It is, in my opinion, at that point, that the application must fail.

…… Indeed I think it may be productive of error in a particular case when determining whether an order should be made under s29A to pay over much regard to the principles evolved by equity as part of the doctrine of rectification. Primarily the Court is concerned with the meaning of the language of the section." 23 In Trimmer v Lax - Estate of M A Fresen NSWSC 9 May 1997 unreported Hodgson J (as his Honour then was) said: "For rectification in the present case, it is necessary that the Court be satisfied, with appropriate clarity, that the deceased did have an intention as to what should happen in the event that Mr Mitchell pre-deceased her, and what that intention was. It is not enough for the Court to have the opinion that, if the deceased had considered the possibility, she probably would have provided in favour of Mrs Lax. What is required is an actual intention, which has miscarried: see Commissioner of Stamp Duties v Carlenka 95 ATC 4620 at 4633." 24 The principles were also considered by Young J (as his Honour then was) in Re Estate of Max Frederick Dippert [2001] NSWSC 167. 25 The most compendious discussion, as often, of the law in this area is that of Campbell J in Rawack v Spicer supra. His Honour said: "26 Before the power of rectification can be exercised, the court must be satisfied both that the will was so expressed that it fails to carry out the testator's intentions, and also what it was that the testator intended concerning the part of the will which is to be rectified. Even if the court is satisfied that a testator would not have wanted his property to go in the way that, in the events which have happened, a particular clause results in the property going, the court can rectify the will only if it is satisfied about what the testator actually intended to happen to his property in that particular event: Brian William Mortensen v State of New South Wales (New South Wales Court of Appeal, 12 December 1991, unreported); Re Estate of Max Frederick Dippert [2001] NSWSC 167 (Young J, 20 March 2001, unreported). 'It is not enough for the Court to have the opinion that, if the deceased had considered the possibility, she probably would have provided in favour of [a named beneficiary]. What is required is an actual intention, which has miscarried': Trimmer v Lax (Hodgson J, 9 May 1997, unreported at 12). '... What one must look for is an error which has occurred in the transcription of the will or where one can see what the intention of the testator was but the words used have not fulfilled the intention. What one cannot do is to look at unforeseen circumstances and speculate what the testator might have done in those circumstances and then supply words to meet those circumstances.' Re Estate of Max Frederick Dippert [2001] NSWSC 167 (Young J, 20 March 2001, unreported at [17]).

30 The dictionary to the Evidence Act 1995 says, 'civil proceeding means a proceeding other than a criminal proceeding.' A claim for rectification of a will is thus a 'civil proceeding' within the meaning of the Evidence Act 1995. Section 140 of the Evidence Act 1995 says: '(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities. (2) Without limiting the matters that the Court may take into account in deciding whether it is so satisfied, it is to take into account: (a) the nature of the cause of action or defence; and (b) the nature of the subject-matter of the proceeding; and (c) the gravity of the matters alleged.'

31 Each of the items listed in section 140(2) is relevant to a claim for rectification of a will. The nature of the cause of action or defence, namely a claim to rectify the will of the deceased person, involves a situation closely analogous to that involving a claim against a deceased estate. Hence the factors which will lead a Court to take great care in evaluating the evidence concerning a claim against a deceased estate (referred to in Nagle v Lavender [2002] NSWSC 611 at [25] - [27]) likewise apply to a claim for rectification. That granting rectification involves the Court in altering a document which will irrevocably change the destination of a deceased person's property after death, when the deceased has gone to the trouble of executing in a particularly formal fashion an instrument, often after receiving legal advice that the testator has paid for, is a serious subject matter. To allege that a testator, particularly when a will has been made in a formal fashion and with legal advice, has incorrectly stated, or unclearly stated, his or her intentions in that Will, is to allege a fairly grave matter - not as far advanced, in the spectrum of gravity of allegations, as an allegation of fraud, but still fairly grave. These considerations underlie some of the judicial statements about the standard of proof required before rectification of a will is granted." 26 The defendants' contention is that the references to grandchildren without qualification in the conversations set out above in the context of the creation of trusts to keep absolute control of the assets from the testator's children should be taken to evince an intention that grandchildren born after the testator's death were to be benefited by the trusts. 27 Against this there is the following context: (1) The existing will limited benefits to grandchildren born before the testator's death. (2) The present provision is clearly there already in the December 2004 and February drafts of the will. (3) There was no discussion as to the ambit of "grandchildren" despite the discussion of many other matters between the testator and his solicitor. (4) The testator's general indecision concerning important matters including matters relating to the incidence of the relevant trusts. 28 In the circumstances, the Court cannot be satisfied that it is established with sufficient clarity that the testator did have an intention that the gift should apply to grandchildren born after his death. The failure to establish that matter to the Court's satisfaction means that the case for rectification fails. …oOo… 29 I turn now to deal with the plaintiffs' claim. The plaintiff's claim declarations that they are absolutely entitled to the capital and accumulated income of Trust 1 and Trust 2 respectively created by the will and orders that the defendants transfer the capital and accumulated income of those trusts to the plaintiffs respectively. They ask these orders to be made on the basis that they will become liable between them for the balance of the margin loan of some $198,000 that is the only remaining substantial obligation of the estate. 30 The question as to whether they are entitled to those orders depends on whether or not they fall within what is known as the rule in Saunders v Vautier (1841) 4 Beav 115; 49 ER 282; affd (1841) Cr E Ph 240; 41 ER 482. The rule and a modern extension of it are stated in two recent Australian cases. 31 The first is Sir Moses Montefiore Jewish Home v Howell and Co (No 7) Pty Ltd [1984] 2 NSWLR 406. In that case Kearney J was dealing with a charitable trust under which there were two charitable beneficiaries. His Honour said at 410 - 411: "It is common ground that in accordance with the principle laid down by the House of Lords in Wharton v Masterman [1895] AC 186 the rule established in Saunders v Vautier may be availed of by a charitable body, whether corporate or unincorporated, where such body is entitled to an absolutely vested gift which is payable at a future date, so as to entitle such body to terminate intermediate income provisions in which no other person has any interest. It is further settled that in a case where there are several beneficiaries having indefeasibly vested interests with possession or payment postponed, then all beneficiaries may combine, provided none is under any disability, likewise to terminate the trusts and the trustees' discretion, and to achieve immediate payment to them of the trust property.

The question then is whether objects of a discretionary trust, having such an interest, can join in terminating the discretionary trusts. I consider that the objects constitute the entire range of persons entitled to call for the administration of the trust, and, accordingly, they represent the only persons interested in its due administration. It does perhaps seem odd, as pointed out in Jacobs' Law of Trusts in Australia, 4th ed (1977) at 538, that all the objects should collectively enjoy a beneficial ownership entitling them to invoke the rule in Saunders v Vautier which is different in character from the aggregate of their individual interests. Nevertheless, I consider that such entitlement does exist. I accordingly agree with the view stated in Jacobs (at 539) that the rule in Saunders v Vautier does encompass a claim by such objects to call for the trust fund. This view is supported by the decision Re Smith; Public Trustee v Aspinall [1928] Ch 915 which in turn relied upon the Court of Appeal decision Re Nelson which is reported as a footnote to the report of Re Smith [1928] Ch 920(n). Likewise, Simonds J in Re Beckett's Settlement expressed the same view (at 285): '… It is quite true that in one sense the objects of a discretionary trust have an interest in the fund which is being administered for their benefit. It is so far true that if the whole of the fund is applicable for their benefit, and they are of full age, they are together entitled to put an end to the discretionary trust. If authority is needed for that obvious proposition it is to be found in In re Smith [1928] Ch. 915.'"

In that case Kearney J ruled that the two beneficiaries, being members of a closed class, could call in the estate. 32 The principles were further dealt with in the High Court in CPT Custodian Pty Ltd v Commissioner of State Revenue of the State of Victoria (2005) 224 CLR 98. In a joint judgment of the whole Court (Gleeson CJ, McHugh, Gummow, Callinan and Heydon JJ) their Honours said at 118: " Saunders v Vautier is a case which has given its name to a 'rule' not explicitly formulated in the case itself, either by Lord Langdale MR (at first instance) or by Lord Cottenham LC (on appeal). In Anglo-Australian law the rule has been seen to embody a 'consent principle' recently identified by Mummery LJ in Goulding v James [1997] 2 All ER 239 at 247 as follows: 'The principle recognises the rights of beneficiaries, who are sui juris and together absolutely entitled to the trust property, to exercise their proprietary rights to overbear and defeat the intention of a testator or settlor to subject property to the continuing trusts, powers and limitations of a will or trust instrument.'"

Their Honours continued at 119: "There is a further consideration. The facts of the present cases do not, in any event, answer the modern formulation of the rule in Saunders v Vautier , stated as follows in Thomas on Powers (1998), p 176: 'Under the rule in Saunders v Vautier (1841) 4 Beav 115 [49 ER 282]; affd Saunders v Vautier (1841) Cr & Ph 240 [41 ER 482], an adult beneficiary (or a number of adult beneficiaries acting together) who has (or between them have) an absolute, vested and indefeasible interest in the capital and income of property may at any time require the transfer of the property to him (or them) and may terminate any accumulation.'

More recently, in Sir Moses Montefiore Jewish Home v Howell and Co (No 7) Pty Ltd [1984] 2 NSWLR 406 at 410-411, Kearney J treated the power to achieve immediate payment of the trust property as reposed in the entire range of persons entitled to call for the due administration of the trust in question." 33 In fact their Honours held that the CPT Custodian case did not fall within the extension of the rule stated in Montefiore because, although the plaintiffs were or represented 100 per cent of the unit holders in a unit trust, they were not the only persons interested in the due administration of the trusts of the deed. They "were not the persons in whose favour alone the trust property might be applied by the trustees of the deed": at [49]. The reason for this was that the trustee and the manager had an interest under a covenant to ensure that there were at all times sufficient readily realisable assets available for the trustee to raise the fees to which the manager and the trustee were entitled. For this reason the plaintiffs failed under the doctrine in Montefiore. 34 In the present case Mr Willmott, of Senior Counsel for the defendants, submitted that, on one view of the matter, all the first plaintiff, to take her as an example, has is a right under clause 5.1 to have income and capital as the trustees think fit. On this basis there is a possibility of intestacy on the first plaintiff's death. 35 However, it is submitted on the defendants' behalf that there are two approaches that can be taken to the construction of Trust 1. The first is that, despite what has been said in [35], one should construe the first plaintiff's interest under Trust 1 as a vested interest in the whole of the fund. That interpretation would be assisted by the well known presumption against the Court construing a will so as to result in an intestacy, as referred to by Bryson J in Robertson v Allen [2003] NSWSC 848 at [18]. On the second approach, it may be that the gift to the first plaintiff ought be construed as not giving her any vested interest at all. 36 If the first of the two views be correct, then the first plaintiff (and also the second plaintiff under the similar provisions) would be entitled to terminate the trusts and receive payment of the fund under what might be called the first leg of Saunders v Vautier, that is, that "she is the person with an absolute, vested and indefeasible interest in the capital and income of the property." It is only if the gift is construed in the second fashion to which Mr Willmott has pointed that it would be necessary to turn to what may be called the second leg of Saunders v Vautier, that is, the principle referred to in Montefiore. 37 In my view, in all the circumstances of the case the gift to the first plaintiff and the second plaintiff should be construed in the surrounding circumstances and in the events which have happened as gifts which absolutely vest the trust property in the first plaintiff and the second plaintiff respectively. There is no doubt in my mind that the testator intended that the property should be taken by the named beneficiaries and there should be no occasion of intestacy. In those circumstances there is no doubt that they are entitled to demand the corpus of the trust fund under the basic principle in Saunders v Vautier. 38 However, if I am wrong in that, then the plaintiffs would have to rely upon the Montefiore principle. Mr Willmott says that, if that is so, they fail because it is a requirement of the Montefiore principle that their rights are indefeasible. Mr Cotman, of Senior Counsel for the plaintiffs, submits that that is simply not so. The requirement of an absolute and indefeasible right is a requirement of the first and traditional basis of the rule in Saunders v Vautier and is not a requirement for the operation of the Montefiore principle. 39 It is not stated either by Kearney J in Montefiore or by the High Court in approving Montefiore in CPT Custodian as a requirement of the second basis. The second basis does not proceed on the basis of a proprietary right. It proceeds quite explicitly on the basis that there is no proprietary right. In the words of Kearney J, it applies where "the individual right of each object is in the nature of an equitable chose in action creating the entitlement to require the trustee to deal with the distributable funds in accordance with due and proper administration of the trust." 40 That this is the principle is demonstrated in the decision of the High Court in CPT Custodian, where application of the principle was refused to the plaintiffs in those proceedings on the basis that they were not the persons alone entitled to demand due administration. In this case the two plaintiffs are respectively the sole persons entitled to demand due administration of Trust 1 and Trust 2. Whether or not their rights could be said to be indefeasible (and perhaps they could in any event) is irrelevant to the application of Saunders v Vautier through the Montefiore principle. 41 Therefore, whatever conclusion one comes to on the true interpretation of the terms of the Trusts, in all the circumstances of the present case the plaintiffs are entitled to demand a transfer to them of the trust funds. 42 We are now in the situation where the plaintiffs have been successful on both claim and cross claim. There is in my view no doubt that they should have their costs of the proceedings out of the estate on the ordinary basis. I should say that, despite their lack of success, the defendants were justified in raising both issues with the Court and therefore ought have their costs out of the estate on the indemnity basis.

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