Pedley-Smith v Pedley-Smith

The special power of appointment is created by the will of Arthur Dolby Pedley who died on 12th February, 1935. By his will he declared trusts of specified shares of the residue of his converted estate in favour of certain beneficiaries one of whom is the appellant Mrs. Pedley-Smith. His will proceeded to settle the shares of the several beneficiaries by a provision applying to all the shares. Each share was settled upon trusts to pay the income to the beneficiary for life and after his or her death to hold the capital and interest thereof "upon trust for such one or more of his or her issue, immediate or remote, born before the expiration of twenty-one years after his or her death as he or she may by deed or will appoint". In default of appointment there was a trust for the child or children of the beneficiary who should attain twenty-one, if more than one as tenants in common in equal shares. Finally, if after the death of the beneficiary the share should not vest absolutely in some person or persons (in other words if there were not children attaining twenty-one) the share should be held for such persons as the beneficiary might appoint under a general testamentary power of appointment and in default of any such appointment in trust for the beneficiary's next of kin. Since it is the share of Mrs. Pedley-Smith that is in question, in the application of the special and general powers she is the donee upon whom the powers are conferred, it is her issue who are the objects of the special power, and her children who are to take in default of appointment under the power. In point of fact Mrs. Pedley-Smith has had no children. But by an adoption order, made on 13th May, 1941, under the provisions of the Child Welfare Act 1939-1940 N.S.W., she and her husband adopted twin boys who were born on 10th July 1940. On 22nd September, 1949, Mrs. Pedley-Smith executed a deed of appointment in purported exercise of the special power. By the deed she appointed that after her death her share under the will should be held upon trust for such of the two adopted sons as should be living at her death, if more than one equally between them. If either died in her lifetime leaving issue living at her death, then such issue should take per stirpes the share which the adopted son so dying would have taken if he had been living at her death. If the adoption brought the adopted sons within the class of objects of the special power, it is not denied that this exercise of the power would be valid. The question whether as a result of the adoption they did become objects in whose favour the special power might be exercised was raised by an originating summons issued by their adoptive father as one of the trustees of the will of Arthur Dolby Pedley deceased. The summons came before Roper C.J. in Eq., who decided that the adoption did not have this effect and declared that the deed was not a valid and effective exercise of the power of appointment. From this decision the present appeal is brought.

It will be seen that the question relates to future rights. Nothing appears as to the possibility of children coming into existence who qualify by birth and not adoption as objects of the power. If there be such a possibility, a decision in favour of the validity of the appointment that has been made would exclude the rights of a class who may, but have not yet, come into being. If there be no such possibility the question, as Roper C.J. in Eq. pointed out, really relates to the availability to Mrs. Pedley-Smith of the special, rather than the general, power of appointment, for the purpose of appointing her shares to her adoptive sons. The distinction is of great importance both for the purposes of New South Wales death duty and of Commonwealth estate duty, and that no doubt is why the question is propounded during the life of Mrs. Pedley-Smith.

A party was appointed to represent her next of kin who under the trusts of the testator's will would take in default of children and in default of the exercise of the general power of appointment. This representation proved adequate in fact, however tenuous is the interest of the next of kin in the question at issue. But nevertheless the propriety of determining the question in the present state of affairs is open to doubt. It is a matter upon which it will be enough to refer to In re Staples; Owen v. Owen [1] , and In the Will of Sayer [2] , where the considerations affecting such a question are discussed. Roper C.J. in Eq. was alive to the difficulty. His Honour said: "There is no doubt that in many respects the question is premature and its submission at this stage has some unsatisfactory features because of that. No objection has been taken to it being decided. In fact, all parties seek a decision upon it in this suit, and I think, though with some doubt, that there is sufficient present materiality in it to permit the Court to decide it, so that the first-named defendant will know whether the deed of appointment, so far as the trusts declared under it come into operation, has exhausted her power to appoint."

1. (1916) 1 Ch. 322; 114 L.T. 682. 2. (1921) V.L.R. 95.

In the result the conclusion which his Honour reached could prejudice no unascertained interest. As we are of opinion that this conclusion is correct, we shall no doubt be safe enough in following the course the learned judge took of acceding to the desire of the parties and deciding the matter.

The question whether the two adoptive sons can take under the appointment made in the purported exercise of the special power is governed by s. 168 of the Child Welfare Act 1939-1952 N.S.W.. The first part of that section provides that when an order of adoption is made, for all purposes, civil and criminal, and as regards all legal and equitable rights and liabilities, the adopted child shall be deemed to be a child of the adopting parent, and the adopting parent shall be deemed to be a parent of the adopted child, as if such child had been born to such adopting parent in lawful wedlock. On this part of the section it is said that the two adopted sons are "issue" and so become objects of the special power. That in law an adopted child must be considered the "issue" of the adopting parent has been decided in New Zealand under a similar provision: In re a Deed of Trust; Peddle v. Beattie [1] ; In re Stevenson; Public Trustee v. X [2] (cf. In re Kingi; Thompson v. Kingi [3] , where Myers C.J., as it seems, reserved the question for future consideration).

1. (1933) N.Z.L.R. 696. 2. (1944) N.Z.L.R. 301, at pp. 312-313. 3. (1937) N.Z.L.R. 1025, at p. 1029.

No doubt logic appears to require that if you "deem" a child to be born to a man or woman you must deem the child to be his or her issue. But the section is subject to a proviso which qualifies the effect of the "deeming", and it is upon that proviso that the question really turns whether the two adopted children can take under an exercise of the special power. Before the proviso, however, there is another clause which should be mentioned, although it has no direct application to the case. What it says is that the order of adoption shall terminate all rights and liabilities existing between the child and his natural parents other than the right of the child to take property as heir or next of kin of his natural parents or of their lineal or collateral kindred. Then comes the proviso in four lettered paragraphs. It is par. (a) that directly governs the question, and it is necessary to set it out: "Provided always that such adopted child shall not by such adoption - (a) acquire any right, title, or interest in any property under any deed, will, or instrument whatsoever made or executed prior to the date of such order of adoption unless it is expressly so stated in such deed, will, or instrument."

The appointment could not result in the adopted sons acquiring an interest in the share of Mrs. Pedley-Smith except "by such adoption". For except "by such adoption" they could not qualify as "issue" so as to be objects of the power. It is only because, under the first part of the section, the adoption makes them her children that they could be capable of answering the description of issue. It seems plain enough that the acquisition of the right, title or interest was "by such adoption" within the meaning of the proviso. It is no objection that the right, title or interest did not pass, was not acquired, at the moment of the adoption. The whole frame of the four paragraphs of the proviso, and indeed of the second part of the main provision of the section, shows that rights in property are included though they arise after the adoption, if otherwise they are of a required description. Thus in the second part of the main provision, when the right is preserved of the child to take property as heir or next of kin of his natural parents or of their lineal or collateral kindred, the reference is to rights which can only arise on the death of the natural parent or of the kindred, there being nothing in the meantime but a spes successionis. Indeed until such death the child cannot properly be described as heir or next of kin. Nemo heres viventis. In par. (c) of the proviso there is a partially corresponding or correlative provision that such adopted child shall not by such adoption be entitled to take any property as next of kin to any lineal or collateral kindred of the adopting parent, and in par. (d) it is extended to taking property as next of kin of any child of the adopting parent. These restrictions upon the operation of the main provision of the section look, of course, to rights arising from a death occurring in the future. This is necessarily true also of par. (b), which says that such adopted child shall not be entitled to take any property limited to the heirs of the body of the adopting parent. What par. (a) excludes is the acquisition of a right, title or interest in property under a deed will or instrument made or executed before the adoption order. But the interests appointed by the deed are surely acquired under the will creating the power within the meaning of the proviso. It is no doubt true that the appointment must combine with the power before an interest passes to or is acquired by the appointees. But it is the will that marks out "issue" as the objects to which the testator's bounty is confined, and the will is the assurance by which the property is imparted to the appointees once the power is exercised. The adoption and the special power of appointment form two of the constituent elements of the appointee's title. The evident purpose of par. (a) of the proviso is to prevent dispository instruments already made in favour of children by birth receiving, because of the adoption, an unintended operation in favour of adopted children. The words "acquire under" are quite apt to apply to the special power in pursuance of which the appointment is made, and such a thing appears clearly enough to fall within the policy of the provision. The question really is answered by the interpretation of the section. But the result also ensues from the principle governing the operation of special powers of appointment. The principle is stated by Lord Romer in Muir v. Muir [1] , in the following passage: "My Lords, if a person be given a general power of appointment over certain property he is virtually the owner of that property. If and when he exercises the power the interests of his appointees come to them by virtue of and are created by the deed of appointment. In the case of a special power it is very different. If, for example, property be settled on trust for A for life and after his death on trust for such of A's children or remoter issue and in such proportions as B shall by deed appoint, B has no interest in the property whatsoever. He has merely been given the power of saying on behalf of the settlor which of the issue of A shall take the property under the settlement and in what proportions. It is as though the settlor had left a blank in the settlement which B fills up for him if and when the power of appointment is exercised. The appointees' interests come to them under the settlement alone and by virtue of that document. These remarks apply equally well to the case where the donee of the power of appointment has, not only the power of saying which of the class shall take under the trust, but also the power of saying what interests they shall take. This would be the case if, in the instance that I have given, the limitation after A's life interest were for such of the children or remoter issue of A in such proportions and for such estates and interests as B shall by deed appoint. If and when B executes the power the settlement will, in accordance with the principle, be read thereafter as if the property had been thereby limited to the appointees for the several estates and interests specified in the deed of appointment." [2] .

1. (1943) A.C. 468. 2. (1943) A.C., at p. 483.

This does not mean that the objects of a special power, the donee being under no duty to exercise it, take any interest before an interest is appointed to them. "No statement of the principle that I have ever seen", said Lord Romer "has suggested that the appointees under an appointment in their favour take any interest in the subject-matter of the power until the appointment takes effect. It is, on the contrary, quite plain that they do not, and that is all that Lord Hardwicke decided in the case in question" [3] , viz. Duke of Marlborough v. Lord Godolphin [1] . It is in this sense that the present Lord Chancellor spoke in In re De La Bere's Marriage Settlement Trusts; De La Bere v. Public Trustee [2] , when, referring to In re Dickinson's Settlements; Bickersteth v. Dickinson [3] , and In re Rush; Warre v. Rush [4] , his Lordship said: "In fact, those cases are examples of a principle which seems to be perfectly clear, namely, that, where there is an instrument creating a power and a later instrument exercising that power, the interest created by the exercise of the power arises under the later instrument, for, in fact, there never was such an interest until the power was exercised so as to create it." [5] .

1. (1943) A.C., at p. 485. 2. (1750) 2 Ves. 61 [28 E.R. 41]. 3. (1941) Ch. 443. 4. (1939) Ch. 27. 5. (1922) 1 Ch. 302. 6. (1941) Ch., at p. 448.

But while the interest arises under the later instrument in this sense it so arises because of the operative effect of the disposition contained in the instrument creating the power. It would not be in accordance with principle to deny that the interest was acquired under that instrument. The old applications of the principle will illustrate its operation. Thus if the will creating the power devised to the donee an estate of freehold, as for instance an estate for life, and the donee appointed an estate in remainder to his heirs or heirs of his body, they would, under the rule in Shelley's Case [6] , operate as words of limitation and not of purchase. The strength of the illustration can be seen from the language in which the rule was laid down by the defendant's counsel and agreed in Shelley's Case [7] itself and adopted by Lord Macnaghten in Van Grutten v. Foxwell [8] , viz., that "It is a rule in law, when the ancestor by any gift or conveyance takes an estate of freehold, and in the same gift or conveyance an estate is limited either mediately or immediately to his heirs in fee or in tail, that always in such cases, "the heirs" are words of limitation of the estate and not words of purchase" [9] . So that the power and the appointment are considered for the purposes of the rule "the same gift or conveyance", that is to say, the two instruments form parts of the same assurance. For a reason which, though not quite the same, is part of the same principle, at a time when a husband had not been enabled by statute to convey to his wife, he might nevertheless have exercised in her favour a special power created before the coverture by appointing an estate to her; "because the wife's estate arises in such a case not out of the husband's estate, but out of the seisin under the original instrument creating the power": Farwell on Powers, 3rd ed. (1916), p. 328. A third illustration is afforded by the familiar rule that for the purpose of the rule against perpetuities the remoteness of the limitations appointed must be determined as if they had occurred in the instrument creating the special power.

1. (1581) 1 Co. Rep. 88b [76 E.R. 199]. 2. (1581) 1 Co. Rep., at p. 104a [76 E.R., at p. 234]. 3. (1897) A.C. 658. 4. (1897) A.C., at p. 667.

As the assurance of the interest appointed by a special power is formed of the two instruments the principle thus illustrated cannot make it wrong to say that the interest is acquired under both instruments together. But it does make it wrong to deny that for such a purpose as that of s. 168 of the Child Welfare Act the interest was acquired under the instrument creating the power. In Attorney-General v. Chapman [1] , Wills J. said: "A deed of appointment would do nothing of itself, and only owes its vitality to the instrument creating it. It is surely, under such circumstances, no stretch of language to say that property, the right to direct the application of which is created by deed A, but the specific direction of which is effected by deed B, passes under (not by) deed A." [2] .

1. (1891) 2 Q.B. 526. 2. (1891) 2 Q.B., at p. 532.

It is entirely consistent with this view to say as Chitty J. did in In re Earl of Devon's Settled Estates; White v. Earl of Devon [3] , that children supposedly taking under an appointment made in the exercise of a special power would not, for the purpose of the Real Property Limitation Act 1874-1893 Imp. (37 & 38 Vict. c. 57 - 56 & 57 Vict. c. 54), "claim by through or under or by the act of the appointor. They would claim under the settlor, and by the combined operation of the acts of the settlor and the appointor." [4] .

1. (1896) 2 Ch. 562. 2. (1896) 2 Ch., at p. 570.

The operation being thus combined, it is to be expected that, where for the purpose of some provision, whether contained in a statute or another instrument, a reference is made to the creation of proprietary interests, there will be a question on the interpretation of the statute or instrument as to which of the elements together forming the assurance the statutory or other provision should be taken to apply. There are not a few decided cases illustrating the variety of ways this may occur. In re Bellamy's Trust [5] , turned upon a marriage settlement containing a covenant to settle after acquired property to which the wife or the husband in her right should become entitled "under or by virtue of the last will" of her father. Her father was the donee of a special power of appointment of which she was an object, and by his last will he appointed in her favour a share of the fund which was subject to the power. Page Wood V.C. said that the words in the covenant pointed only to property belonging to the father strictly in his own right and not to that of which he was the mere instrument of distribution. Attorney-General v. Chapman [1] , shows that for the purpose of the stamp duties imposed by the Customs and Inland Revenue Act, 1881-1889 Imp. (44 & 45 Vict. c. 12 - 52 & 53 Vict. c. 7), s. 38, upon "property passing under" a voluntary settlement, whereby an interest for life was reserved to the settlor, property appointed under a power contained in a settlement reserving such a life estate "passed under" the settlement. Wills J. said [2] , "if the House of Lords on three several occasions has applied in respect of succession duty the principle that the interest created by the power must be treated as arising under the deed creating the power, there would be abundant justification for our applying it to a question arising under" the Customs and Inland Revenue Act, 1881. The decisions to which Wills J. referred are Lord Braybrooke v. Attorney-General [3] ; Attorney-General v. Floyer [4] , and Charlton v. Attorney-General [5] . They are decisions which turn very much on the interpretation of the not over simple statutory provisions which governed succession duty. But the point to be made is that in the end the question whether, for the purpose of a particular provision in a statute or in any other instrument, you are to take the power or the appointment depends very much on the scope and purpose as well as the language of the statute or other instrument.

1. (1862) 1 New Rep. 191 [135 R.R. 932]. 2. (1891) 2 Q.B. 526. 3. (1891) 2 Q.B., at p. 533. 4. (1861) 9 H.L.C. 150 [11 E.R. 685]. 5. (1862) 9 H.L.C. 477 [11 E.R. 814]. 6. (1879) 4 App. Cas. 427.

In Re Dickinson's Settlements [6] , Crossman J. held that the appointment, not the power, was the document under which the interest of children arose within the meaning of s. 31 (5) of the Trustee Act 1925-1935 Imp. (15 Geo. 5. c. 19 - 26 Geo. 5. c. 2), which excludes the operation of s. 31 to give power to apply income for maintenance and other purposes "where the instrument, if any, under which the interest arises came into operation before the commencement of this Act". The instrument which brought the interest into existence was of course the appointment, which doubtless might have provided for maintenance, and it may be supposed that it was intended that the power given by s. 31 should attach when trusts in favour of children were thus created.

In Re Hoff [7] , a case in which analogies to this may be found, Farwell J. held that s. 10 (2) of the Legitimacy Act 1926 Imp. (16 & 17 Geo. 5. c. 60), which provided that nothing in the Act should affect the operation or construction of any disposition coming into operation before the commencement of the Act, prevented an appointment in favour of children, legitimated as a result of the Act, under a power created before the Act, because the power was the disposition. Probably independently of s. 10 (2) the appointment could not have been effective: cf. s. 3 (1) (b).

In Re De la Bere's Marriage Settlement Trusts [1] , which has already been referred to, the question which Lord Simonds decided arose upon an exception in a covenant to settle after acquired property. The covenant was contained in a marriage settlement. The exception excluded any property regarding which an intention was expressed in the instrument under which the property was acquired that it should be exempt from the covenant. Such an intention was expressed in an appointment made in pursuance of a power, and his Lordship held that it sufficed. For the purpose of the exception that instrument answered the description. Lord Simonds said: "I think that it is reasonably clear that the instrument under which the plaintiff acquired her share of the trust fund was the deed poll of appointment under which the power was exercised." [2] . But non constat that if the power had expressed such an intention, and the appointment had not done so, the interest would have fallen outside the exception. For the two instruments together form the assurance and the intent of the exception may well have been to exclude any interest assured to the wife on the express footing that it should not be caught.

There are two decisions of Roxburgh J. which should be mentioned, In re Edwards; Lloyds Bank v. Worthington [3] , and Re Dowie's Will Trusts [4] . But it is enough to say that each depends entirely on the interpretation of the instrument which made it necessary to choose between the power and the appointment.

The latest examples of such a question of interpretation are found in two decisions of Vaisey J. The first is Re Batty [5] . The question for decision was whether or not the power of advancement which s. 32 of the Trustee Act 1925-1950 Imp. (15 Geo. 5. c. 19 - 14 Geo. 6. c. 6) gives to trustees was applicable to certain trusts appointed by deed under a special power of appointment. The power of appointment was created before the commencement of that Act, but the exercise of the power took place after its commencement. Sub-section (3) of s. 32 provides that the section does not apply to trusts constituted or created before the commencement of the Act. His Lordship took the view that the trusts were constituted or created before the commencement of the Act because the power was then created. The decision, although not uninfluenced by Muir v. Muir [1] , depended on the view Vaisey J. took of the purpose of the sub-section. It may be suggested, with great respect, that the subsection was concerned with the effect of trusts which had come into existence and, so to speak, were fixed before commencement of the Act, and that it was for that reason the word "constituted" was used. The trusts were defined and made effective, and in that sense "constituted" by the appointment. His Lordship distinguished this case in the second of the two decisions, Re Leigh's Marriage Settlement; Rollo v. Leigh [2] . The question there was whether s. 161 (1) of the Law of Property Act 1925-1950 Imp. (15 Geo. 5. c. 20 - 14 Geo. 6. c. 6) which abolishes the rule in Whitby v. Mitchell [3] , applied to limitations made after the commencement of the Act by the exercise of a power of appointment created before its commencement. Sub-section (2) of s. 161 provides that the section only applies to limitations or trusts created by an instrument coming into operation after the commencement of the Act. The word "created" told in favour of the view that the deed of appointment was the instrument to be regarded. On the other hand the policy of the sub-section evidently was to preserve proprietary rights arising or capable of arising by reason of instruments already in existence, and the rule in Whitby v. Mitchell [3] controlled the scope and ambit of the power of appointment, and in that way defined the future children who might be made objects. Moreover the rule that the appointment must be read into the power had a specific and well known application to the very rule abolished. Vaisey J., however, preferred the view that as the appointment was the immediate cause of the trusts or limitations coming into existence, s. 161 applied. Again the decision necessarily turned on the meaning ascribed to the provision.

1. (1952) Ch. 280. 2. (1943) A.C. 468. 3. (1952) 2 All E.R. 57. 4. (1890) 44 Ch. D. 85. 5. (1890) 44 Ch. D. 85.

The foregoing cases do not govern the construction or the application of a provision like par. (a) of s. 168 of the Child Welfare Act, 1939. Nor do they affect the principle that the interests appointed are given by the power. The manner in which the principle was applied by the House of Lords in Muir v. Muir [1] , confirms its application to the present case.

There is only one further observation to be made. It is that the adopted sons clearly could not take in default of appointment under the trust in the will in favour of the children or child of the beneficiary, that is of Mrs. Pedley-Smith. That is indisputably excluded by the terms of par. (a) of the proviso to s. 168. It would be an odd result if they could take nevertheless as objects to which the power extends. There seems to be no reason to doubt the correctness of the view taken by Roper C.J. in Eq.