Morriock v Hawker.

Morriock v Hawker. - [1942] HCA 3 - HCA 1942 case summary — Zoe

[19]

by such sale calling in and conversion and with: and out of such part of my personal estate as shall consist of money pay my funeral and testamentary expenses and just debts and the legacies bequeathed by this my will or any codicil thereto And shall stand possessed of the said residuary trust funds and the investments for the time being _ representing the same (hereinafter called the residuary trust funds) Upon the trusts following that is to say Upon trust to invest a sum sufficient in their opinion to yield a net annual income of two thousand pounds And I direct my said Trustees to pay the said net annual income of two thousand pounds free from all succession or other duty to my said dear wife during her natural life for her sole and separate use without power of anticipation such payments to be made in equal quarterly sums of five hundred pounds each and the first of such payments to be paid within four calendar months of my decease And I declare that after such a sum sufficient in their opinion to yield a net annual income of two thousand pounds has been so set apart or invested the rest of my trust estate shall be liberated from all liability in respect of the payment of the said net annual income And upon the death of my said wife the capital sum so set apart and invested from which such annual income may be derived shall together with ' Hssenside' and the said paddock adjacent thereto fall into and form part of my residuary trust funds And as to my residuary funds in trust for all my chilldren (séc) in equal shares And I further declare that as to the share or shares in the said residuary trust funds of any son or sons of mine under the trusts of this my will my Trustees shall (subject as hereafter _ limited and directed in respect of the share of my son William Andrew) pay the same to him or them absolutely But as to the share or shares in the said residuary trust funds of my son Wiliam Andrew and of any daughter or daughters of mine under the trusts of this my will I direct my Trustees to invest the same arid pay the amount derivable therefrom to the said William Andrew Tennant and my respective daughters for their sole and separate use free from the control of any present or future husband And I hereby declare that any daughter of mine who may not leave issue or descendants her surviv- ing shall have power to absolutely dispose of her share in the said residuary trust funds by will but not otherwise And as regards my son William Andrew I direct that my Trustees share (s7¢) invest the share to which he is entitled under this my will and the income thereof or so much thereof as my Trustees shall consider sufficient shall be paid to him or applied to his benefit and the share or portion together with any accumulations of income of my said son William

[21]

Ix re; males on their attaining the age of twenty-five years and to such Monn ace children as are females on their attaining the age of twenty-one years Hawker, and in the event of the death of my said son William Andrew without ~ - _ Jeaving any children him surviving them (sic) the share to which the children of my said son William Andrew would have been entitled shall fall into and form part of my residuary trust funds Provided always and I hereby declare that should my said son William Andrew die leaving a widow my Trustees may pay to such widow such portion of the income arising from the share of my said son William Andrew as they in their absolute and uncontrolled discretion shall deem sufficient for her maintenance and support and after a sum sufficient for such purpose shall have been set apart and invested the rest of the share of my said son William Andrew shall be liberated from all liability for any payment to such widow and on the death of such widow the portion of my said son William Andrew so set apart and invested shall fall into and form part of my residuary trust funds as if no widow had survived my said son William Andrew And I direct that after the death of any of my daughters leaving issue her or them surviving my Trustees shall stand possessed of the share or interest of such daughter in trust for the children or child if more than one in equal shares such issue to take per stirpes and not per capita and shall pay to the children of my daughters the share or interest to which he or she is entitled upon their attaining the age of twenty-one years And I confer upon my Trustees full power to deal with such share or shares or interest of and in the residuary . trust funds and the accumulations thereof (if any) in all respects as if such daughters or daughter had predeceased me leaving issue And I further declare that in the event of any child of mine dying during my lifetime without leaving issue or thereafter without having exercised his or her power of appointment by will then the surviving husband or wife (if any) of such child (excepting however as is hereinbefore directed as regards the wife of my said son William Andrew) shall for his or her life be entitled to the share or interest in the residuary trust funds to which such child would have been entitled to if he or she had survived me and upon the death of the husband or wife of such child then the share to which such child would have been entitled shall fall into and form part of my residuary trust funds And I direct that the value of any land shares or property transferred by me in my lifetime to any child of mine including the sum of Twenty thousand pounds which I have settled on my daughter

[42]

Mayo K.C. (with him Astley), for certain beneficiaries, respondents in both appeals. The regular chancery practice is that laid down in In re Poyser (1). Alternatively, if In re Hargreaves (2) establishes the general practice, this will brings the case within the exceptions to that practice. The rule in In re Hargreaves (2) is a rule of administration. It has not the force of a rule of construction, and to apply In re Hargreaves (2) here means the attainment of inequality, not of equality, which was the testator's object. In re Hargreaves (2) is not to be applied unless the testator has made it clear that he intended a notional division on an estimated value - an immediate ascertainment of the fractional shares (Hanbury, Modern Equity, 2nd ed. (1937), p. 477). The argument of the appellant based on the provision relating to land, shares and other property is fallacious, for the testator has indicated several methods for arriving at the amount to be brought into hotchpot. The only shares given to children are shares in the residuary trust funds, that is, in the proceeds of conversion. [Counsel referred to In re Wills (3); In re Tod (4); In re Izard (deceased); Watkins v. Izard (5); In re Willoughby (6); In re Craven (7); Jarman on Wills, 7th ed. (1930), p. 1146; In re Gunther's Will Trusts (8); In re Rees; Rees v. Genge (9).| The direction in the will to value advances at the date of death is consistent with our contention and with the rule in In re Poyser (1). For the purpose of a computation based on that rule, a valuation is necessary for working out interest at four per cent. This pointer as to valuation is as strong in support of In re Poyser (1) as in In re Hargreaves (2), if not stronger. No case cited is absolutely binding on this Court. In re Hargreaves (2) applies a canon of construction only, or, alternatively, if it states the equitable practice, the rule does not apply to corpus. The case does not apply if the will contemplates postponement (In re Wills (10) ). There must be some permanence about the value to be assigned (In re Mansel (11); In re Craven (12) ; In re Cooke (13); Halsbury's Laws of England, 2nd ed., vol. 34, p. 425; Theobald on Wills, 9th ed. (1939), p. 659). The residue cannot he treated as a series of

[47]

Ligertwood K.C. (with him L. 7. Gun), for other beneficiaries, respondents in both appeals. In re Hargreaves (3) was wrongly decided and departed from the practice of the Court of Chancery which had endured for more than a hundred years (Andrewes v. George (4); Ackroyd v. Ackroyd (5); In re Rees (6); In re Forster- Brown (7); In re Wills (8); Law Times Journal, vol. 188, p. 194). If Im re Hargreaves (3) were rightly decided, the basis of the decision was that the will fixed the rights of the children inter se at the date of the death. In such a case only should the tule be applied (In re Tod (9); In re Willoughby (10)). Such a direction was found in In re Gilbert ; Gilbert v. Gilbert (11) ; Re Hart (12); In re Mansel (13); In re Gunther's Will Trusts (14); In re Oram (15). In re Hargreaves (3) is not to be applied where the testator has not contemplated any ascertainment of the relative fractional shares of his children at the date of his death, where the testator has not contemplated an immediate distribution at his death (In re Poyser (16) ; In re Craven (17) ; In re Mansel (18) ), or where there is difficulty in justly valuing the estate at the date of the death (Im re Cooke (19) ; In re Mansel (18) ). If for one of these reasons In re Hargreaves (3) is not to be applied, advances are brought into hotchpot by charging the share of the advanced child pending the final distribution of the estate with interest at four per cent per annum (In re Poyser (16) ). The limitations indicated above of In re Hargreaves (3) have been recognized in every textbook (Theobald on Wills, 8th ed. (1927), p. 871; Lewin on Trusts, 14th ed. (1939), p. 283; Godefroi on Trusts, 5th ed. (1927), p. 408; Halsbury's Laws of England, 2nd ed., vol. 34, p. 424; Hanbury, Modern Equity, 2nd ed. (1937), p. 477; Jarman on Wills, 7th ed. (1930), p. 1146; Underhill on Trusts, 9th ed. (1939), pp. 246, 255). On the true construction of the present will the testator did not contemplate any ascertainment of the relative fractional shares of his children at the date of his death, nor did he contemplate any immediate distribution of his estate upon his death. There is a

[57]

a simple method which produces a reasonable approximation to fairness is to be preferred to attempts to achieve meticulous accuracy if they involve elaborate actuarial computations, valuations, or applications to the court. If it has been authoritatively stated that a particular rule may be applied in the absence of special circum- stances, it is of great importance, in order that personal representa- tives may be able to administer their estates without incurring the expense of recourse to the court, that the applicability of the rule should not be put in doubt by unnecessary refinements. But this is a counsel of perfection. It is obvious that adjustments, for all relevant purposes identical with those required in the present case, may be necessitated by the equitable doctrine of ademption, or for ~ purposes of hotchpot occasioned by express provision or arising under an intestacy, or by reason merely of the fact that a partial distribution of assets has been made by a personal representative on a basis not strictly proportionate to the shares of the beneficiaries : Cf. In re Tod (1). Since in all these cases the problems are the same, it is perhaps a laudable ideal that the methods for resolving them should be the same. Indeed, it has been established that if it is necessary to determine the value of the property advanced, this must be done, in the absence of some provision to the contrary, as at the date when the advance was made. This is so whether the case is one of ademption (Watson v. Watson (2) ), or of an express provision for hotchpot (In re Crocker ; Crocker v. Crocker (3) ), or of an appropriation in specie by a personal representative (In re Richardson; Morgan v. Richardson (4)). In the case of an appropriation in specie to a beneficiary by a personal representa- tive in part satisfaction of his share, no valuation other than that of an appropriated asset (and of any other assets similarly appropriated) may be necessary. The authorities show that, in this type of case, if the rest of the assets are from time to time sold, and the proceeds distributed, or allocated to settled shares, there is no reason why the administration of the estate should be encumbered by a general valuation, or why capital distributions should not be made on the basis of the value of what is distributed at the time when it is distributed, notwithstanding that the estate may have depreciated in value since the testator's death (In re Lepine ; Dowsett y. Culver (5) - Cf. Herbert v. Badgery (6) ), or that the value of the appropriated asset may have risen or fallen (In re Richardson ,

[78]

But the necessity of reducing the residuary estate to monetary expression is a cause of difficulties that have not been so simply answered. The choice is presented between waiting for the actual realization in money of all the assets comprising the estate, or fixing the values by estimation as at some earlier point of time. If the former course is adopted the proportional or fractional shares in the residuary estate which, as a result of the operation of the provision for hotchpot upon the direction to divide equally, the children are to take will not be ascertained until actual conversion in money is completed, a thing often not required except for the purpose of final distribution. If the latter course is adopted, the fact that the value of property does not remain constant means that the proportional or fractional shares taken by the beneficiaries will vary according to the period chosen for fixing them by means of valuation. A very simple example will suffice to show this. Suppose a residue consists of land or securities which as at the testator's death are valued at £25,000, as at the death of his widow at £27,000, and as at the time when his youngest child attains twenty-one years of age at £33,000 ; that the will disposes of it upon trust for the widow for life and after her death for such of his children as attain full age in equal shares with a provision that advances should be brought into hotchpot ; that there are four children and they attain twenty-one; and that the eldest child has received £3,000 in his father's lifetime by way of advancement. If the value at the death of the testator is taken the fractional proportions would be obtained by adding first the advance of £3,000 to the value of £25,000 and dividing the total of £28,000 by four. The quotient of £7,000 would then, if values remained constant, represent the prima-facie share of each child from which in the case of the eldest his advance of £3,000 must be deducted, leaving £4,000 for him. The proportions are thus 4:7: 7: 7, that is, fractions of 4/25ths for the eldest and 7/25ths for the others.

[118]

In my opinion the decided cases show not only that where there is a hotchpot provision and it becomes necessary to ascertain the shares of income it is an old practice to compute interest upon advances, add it to the income of the trust fund, divide by the number of beneficiaries, and subtract the interest calculated on the advances from the shares of the advanced beneficiaries, but also that it seems to have been clearly perceived that the correctness of applymg this method to a particular case must depend upon the question whether the trust instrument did or did not, intend that the proportional shares in the trust fund should be ascertained before actual distribution. Andrewes v. George (1) is usually cited as the earliest decision. It applies the rule of administration by which interest is credited and debited. There was a trust to pay debts and to invest the residue in government securities and pay the dividends to the testator's widow for life and at her death to transfer the capital to the children. There was a direction to deduct from the shares of a child so much money as had been advanced and lent by the testator to the child so as to render the shares of each equal and of the amount they would have been if sums had not been advanced but had at the testator's death remained attendant on the directions of his will. Shadwell V.C. decided that the testator meant that the deduction should. be made at the time when his property became divisible, and that that time was the death of the widow, and he accordingly directed that interest should be computed from her death. It will be noticed that his decision depended upon his construction of the will, and the question of construction was whether the time at which the advances were to be brought into hotchpot was at the date of distribution or earlier. Hulton v. Hilton (2) was another case in which income was distributed before the fractional shares were ascertained and the distribution was done by crediting interest on the advances to the income of the fund and deducting the interest from the share of each advanced beneficiary. The testator directed the postponement of the distribution of the estate until the youngest child attained twenty-one, and directed the trustees to carry on a business. Malins V.C. treated the death of the testator as the time at which corpus vested, but actual division of the assets as the time for applying the hotchpot provision. He

[134]

In In re Dallmeyer; Dallmeyer v. Dallmeyer (1) the rule so frequently ascribed to In re Hargreaves (2) was again anticipated. It was Rigby L.J. who relied upon it, and, in a dissenting judgment, Lord Herschell referred to it. The circumstances were peculiar. The testator by his will gave his sons in succession the option of succeeding to his business. He then gave pecuniary legacies and an annuity to his widow, and provided for maintenance, &c. He directed the accumulation of the income of residue until his youngest child should attain twenty-one, and then a distribution of the corpus ~ and the accumulations among the children then living. He author- ized his trustees to make advances to his sons in order to establish them in the world. His will made the following provisions : - (a) That the son electing to succeed to his business should be debited with the value thereof to be estimated by the trustees in the division of his residuary estate and that if the value exceeded the total amount of the son's expectant share then the son should refund the excess to the residuary estate. (b) That advances made by the trustees to establish a child should be taken in part satisfaction of the share to which a son might be entitled. The testator had advanced sons, and the trustees exercised their power of advancing in the case of other sons. The Court of Appeal, consisting of Lord Herschell and Smith and Rigby L.JJ., held that, under the foregoing provision for debiting the value of the business to the son who took it, no interest should be charged before the period of distribution, because the will did not say that it should. Lord Herschell and Smith and Rigby L.JJ. held that in the provision relating to advance- ments by the trustees to establish a son in the world no interest before the date of distribution should be charged, because the will contained no warrant for treating sums advanced to a son as if they still formed part of the fund bearing income to be accumulated as a condition of admitting such son to a share in the accumulations. Lord Herschell made a reference to the distribution of income in accordance with fractional shares of corpus first ascertained. He said : - '* Of course the same result in a matter of figures might be arrived at in other ways than by debiting compound interest on

[164]

appeared that, though the income of residue was sufficient to answer the widow's annuity and the interest on the sum to be set aside for Percy, there was not enough to avoid a deficiency, if, as between the five children, the burden of the annuity was to be borne according to the rule laid down by the second part of In re Hargreaves (1). That rule would require that the income, before deducting the annuity, should be divided in the fractional shares obtained in relation to corpus by the application of the hotchpot provision, and then that the burden of the annuity should be distributed among the beneficiaries according to the shares in which without a hotchpot provision they would take, that is equally in the case of In re Har- greaves (1), and sons taking twice the share of daughters in the case of In re Forster-Brown (2). Mann C.J. has given reasons for denying the correctness of the latter part of this rule (Im re Ritchie (3) ). If it were applied in In re Forster-Brown (2) it would produce not a share of income to be credited to the two daughters, but a deficiency or debit against them. It was contended that this deficit, accumu- lated over the widow's lifetime, should be deducted from the increased income to which they became entitled in consequence of the extin- guishment of her annuity by her death. Sargant J. decided against this contention. It may be doubted whether the Court of Appeal in In re Hargreaves (1) meant that if the application of the second part of their decision produced in the case of the share of income of any beneficiary a minus or deficiency it was to be carried over, or accumulated and deducted from, subsequent years. But it was not on this ground that Sargant J. rejected the contention. He did so on the ground that the will did not mean that during the life of the widow the proportions of the corpus should be fixed. "In the present case," his Lordship said, "it seems to me impossible to say that the testator contemplated any immediate distribution of his estate, or any ascertainment of the relative fractional shares of his children as at that date" (4). It followed that the shares of income were to be determined by crediting interest on the advances, and dividing the aggregate and then deducting the interest on the respective shares. His Lordship speaks of Im re Hargreaves (1) as a case depending on a special will, and appears to throw doubt upon it. Possibly he referred to the second part of the decision, which no doubt is open to serious question. In the result he made an order applying the first part to the period after the death of the widow. He declared that the two daughters "have not to be charged with any such deficiencies as suggested in the summons

[203]

this respect between this will and that in the case of In re Hargreaves (1), and that the rule applied in this case should be used in working out the hotchpot provisions. On behalf of the respondents who received gifts in the testator's lifetime which are to be brought into hotchpot, it is contended that the intention of the will is that the fractional shares of the children should be ascertained by making the deductions directed by the hotchpot clause upon conversion, and that the intention of the clause to achieve equality requires the application of the rule of administration applied in In re Poyser (2). Besides, counsel for the appellants condemned the rule in Poyser's Case (2) and counsel for the respondents condemned that in Har- greaves' Case (1), it being suggested that the latter case was a depar- ture from the long-established practice in the administration of hotchpot provisions. There is no ground for the application of the tule in Hargreaves' Case (1) unless the testator's intention as disclosed by the will was that the amount of the share of each of his children was to be fixed at his death. If that was not his intention, there is no need to inquire into the merits of the rule of administration applied in that case. But if, on the other hand, the contention of the respondents is correct that upon the true construction of the will the fractional share of each child is to be ascertained upon conversion, I think that the rule in Poyser's Case (2) is so strongly supported by authority and principle that it should be applied to adjust the rights of the children during the period beginning with the testator's death. However, it is to be remembered that by the deed of family arrangement of 27th July 1939, it was agreed between the beneficiaries that the moneys paid as and for income up to and including 21st November 1939 should be deemed to be income and to have been divided among them in correct proportions. The construction of the will which in my opinion is the correct one is that the shares given to the children in the residuary funds were shares in the proceeds of conversion and not shares of the estimated value of the estate as at the testator's death or at any time prior to conversion. It was from the shares in such proceeds that the testator directed the value of the advances made to his children in his lifetime to be deducted. I adopt the view of Napier J., expressed after a review of the terms of the will: "I think that it follows that a notional division immediately upon the death of the testator would not have given the beneficiaries the rights and interests given to them by the will, i.e., their shares in the proceeds of an actual - realization subject to the deductions directed by the testator." In support of the opposite view, counsel for the appellants relied

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