Reilly v Gengos

Supreme Court of NSW|2006-03-09|Before: Rein AJ

CITATION : Reilly v Gengos [2006] NSWSC 139

JURISDICTION : Equity Division Probate List

CATCHWORDS : PROBATE - Construction of will - Factual issue of whether first plaintiff indebted to testator at time of testator's death, requiring debt to be offset against entitlement to recover benefit of bequest - defendants failed to discharge onus of establishing monies were loans and not gifts - Whether particular clause in will required legacy to second plaintiff to be offset against mortgage debt bequeathed to first plaintiff

LEGISLATION CITED : Wills, Probate and Administration Act 1898, s 21

Allgood v Blake (1873) 8 LR Ex 160 Butler v The Trustees Executors and Agency Co Ltd (1906) 3 CLR 435 Coorey v George (NSWSC, 22/02/86, unreported) Coshott v Sakic (1998) 44 NSWLR 667 Edwards v Edwards [1909] AC 275 CASES CITED : Heydon v Perpetual Executors Trustee and Agency Co (WA) Ltd (1930) 45 CLR 111 Peoples v Simpson [2005] NSWSC 355 Perpetual Trustee Co Ltd v Attorney-General (NSW) and Public Trustee (Estate of the late Richard Harris) (NSWSC, 27/3/87, unreported, BC8701477) Perpetual Trustee Co Ltd v Wright; Re Will of James Paul Gee Cox Junior deceased (1987) 9 NSWLR 18 Perrin v Morgan [1943] AC 399 Towns v Wentworth [1858] 11 Moo PC 526; 14 ER 794 Watson v Ralph (1982) 148 CLR 646

Anne Reilly (First Plaintiff) PARTIES : Mark Gregory Reilly (Second Plaintiff) George Gengos (First Defendant) Lance Richard Dowle (Second Defendant)

COUNSEL : P Hallen SC (Plaintiffs) L Ellison SC (Defendants)

SOLICITORS : Uther Webster & Evans (Plaintiffs) Sparke Helmore (Defendants)

1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION PROBATE LIST

102334/05 Anne Reilly and Anor v George Gengos and Anor JUDGMENT 1 HIS HONOUR: These proceedings concern the will of the late Lionel Vincent Reilly ("the testator") who died on 25 December 2003. The will was the subject of a grant of probate on 10 May 2004. 2 The first named plaintiff Anne Reilly ("Mrs Reilly") was named a beneficiary under the will and the second named plaintiff her son Mark ("Mark") was also a named beneficiary. The defendants are the executors of the will. Mrs Reilly had been married to the testator's step-son Gregory Reilly, but Gregory Reilly had passed away in 1995 following a long period of ill health. 3 Mr Hallen SC appears for the plaintiffs and Mr Ellison SC appears for the defendants. I have received outlines of submissions from both prior to the hearing and received oral submissions. 4 There are two issues only: the first is a construction issue and the second is a factual matter. Clause 6 of the will provides: "6. I DIRECT that any moneys owed to me at the time of my death by any beneficiary shall be deducted by my Trustees from the moneys payable to such beneficiary under this my Will." 5 Clauses 2, 3 and 4 provide: "2. I GIVE the following legacies: (a) To my Step-Daughter JUDITH ANNE MANN the sum of SEVENTY THOUSAND DOLLARS ($70,000.00) . (b) (i) To ANNE REILLY (the Widow of my Step-Son GREGORY RONALD REILLY ) my interest in the Mortgage from BEVERLEY MARY REILLY and MARK GREGORY REILLY to me Registered No 2045298 and dated 15th March, 1996, and (ii) To the said ANNE REILLY the sum of SIXTY THOUSAND DOLLARS ($60,000.00) less the amount of the principal moneys remaining unpaid at the date of my death under the said Mortgage Registered No 2045298. (c) To my friend ISABELLE ROBINSON the sum of TWENTY FIVE THOUSAND DOLLARS ($25,000.00) . 3. I GIVE the sum of ONE HUNDRED AND SEVENTY FIVE THOUSAND DOLLARS ($175,000.00) to such of my seven (7) Grandchildren as should survive me and if more than one equally between them namely JANE REILLY , MARK REILLY and KATHIE REILLY (the children of my late Step-Son, Gregory) JULIE MANN and WARWICK MANN (the children of my Step-Daughter Judith Anne Mann) NATALIE DOWLE and CHAD DOWLE (the children of my Daughter Maree Susan Dowle). 4. I GIVE the rest and residue of my real and personal estate whatsoever and wheresoever situate to my Trustees UPON TRUST to pay thereout all my debts funeral and testamentary expenses and my Trustees shall HOLD the residue for my daughter MAREE SUSAN DOWLE and should she predecease me THEN for such of her children as should be living at the date of my death and attain the age of Twenty-one (21) years and if more than one equally between them." 6 I will deal with the factual issue first. The defendants by their cross-claim assert that Mrs Reilly was indebted to the testator at the time of his death in the amount of $55,000, and that therefore that amount must be offset against her undisputed entitlement to recover the benefit of the bequest under clause 2, ie the mortgage referred to in clause 2 which is one over 64 Dalmar St, Croydon and secures a debt which it is agreed was owed by Mark and his wife Beverly in the amount of $137,000 as at the date of the testator's death. I shall refer to this debt as "the mortgage debt". 7 Mrs Reilly does not dispute that she received money from 1996 until the death of the testator but she denies that any amounts received from the testator (in fact received indirectly because paid to her daughter Jane) were loans. Mr Ellison conceded (correctly in my view) that the onus of establishing that monies paid to Mrs Reilly were a loan and not a gift rests upon the defendants: see Heydon v Perpetual Executors Trustee and Agency Co (WA) Ltd (1930) 45 CLR 111; Coshott v Sakic (1998) 44 NSWLR 667 at 671-2. It was conceded, again correctly, that the onus has not been discharged. There must be a verdict and judgment for Mrs Reilly on the defendants' cross claim against her. I will deal with the question of the costs later. 8 The second issue, that of construction, also involves clause 6 of the will. The defendants assert that clause 6 requires the legacy to Mark of $25,000 (under clause 3) to be offset against the mortgage debt so that no amount is payable to him. Whilst the defendants apparently accept that the $25,000 is to be applied to the mortgage debt to reduce it to $112,000, they dispute that the $25,000 is payable to Mrs Reilly. Principles of construction 9 Counsel were agreed that the first step in construction is to read the will, on its own and without regard to any other evidence or consideration of consequences: see Edwards v Edwards (1909) AC 275 at 277. Mr Hallen submitted that the object of construction is to try to deduce the intentions of the testator. If they cannot be readily discerned, then the Court should proceed to construe the will with the assistance of the canons of construction. Mr Hallen, in his written submissions, also referred to the following cases and passages:

(a) Allgood v Blake (1873) 8 LR Ex 160 at 162-4 in which it was said: "A general rule is that in construing a Will, the Court is entitled to put itself in the position of the testator, and to consider all material facts and circumstances known to the testator with reference to which he is to be taken to have used the words in the Will, and then to decide what is the intention evidenced by the words used with reference to those facts and circumstances which were (or ought to have been) in the mind of the testator when he used those words … No doubt in many cases the testator has for the moment forgotten or overlooked material facts and circumstances which he well knew. And the consequence sometimes is that he uses words which express an intention which he would not have wished to express, and would have altered if he had been reminded of the facts and circumstances. But the Court is to construe the Will as made by the testator, not to make a Will for him; and therefore it is bound to execute his expressed intention, even if there is great reason to believe that he has, by blunder, expressed what he did not mean … We apprehend that no precise line can be drawn, but that the Court must, in each case, apply the admitted rules to the case in hand; not deviating from the literal sense of the words without sufficient reason, or more than is justified; yet not adhering slavishly to them, when to do so would obviously defeat the intention which may be collected from the whole Will."

(b) The statement by Viscount Simon LC in Perrin v Morgan [1943] AC 399 at 406: "… the fundamental rule in construing the language of a will is to put on the words used the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made his will, but what the written words he uses mean in the particular case - what are the 'expressed intentions' of the testator."

(c) In Coorey v George (NSWSC, 22/02/86, unreported), Powell J (as he then was) said, in a passage repeated by Bryson J in Perpetual Trustee Co Ltd v Wright; Re Will of James Paul Gee Cox Junior deceased (1987) 9 NSWLR 18 at 33: "… It seems to me that one's task is, first, if it be possible, to ascertain what was the basic scheme which the deceased had conceived for dealing with his estate and then, so to construe the will as, if it be possible, to give effect of the scheme so revealed."

Perpetual was referred to, with approval, by Gzell J in Peoples v Simpson [2005] NSWSC 355.

(d) Reference was made to the passage from the opinion of the Judicial Committee in Towns v Wentworth [1858] 11 Moo PC 526 at 542-543; 14 ER 794 at 800: "The rules of construction … do not seem open to any doubt. In order to determine the meaning of a will, the court must read the language of the testator in the sense which it appears he himself attached to the expressions which he has used, with this qualification, that when a rule of law has affixed a certain determinate meaning to technical expressions, that meaning must be given to them, unless the testator has by his will excluded beyond all doubt, such construction. When the main purpose and intention of the testator are ascertained to the satisfaction of the court, if particular expressions are found in the will which are inconsistent with such intention, though not sufficient to control it, or which indicate an intention which the law will not permit to take effect, such expressions must be discarded or modified; and, on the other hand, if the Will shows that the testator must necessarily have intended an interest to be given which there are no words in the will expressly to devise, the court is to supply the defect by implication, and thus to mould the language of the testator, so as to carry into effect, as far as possible, the intention which it is of opinion that the testator has on the whole will, sufficiently declared."

(e) It has been said that every rule of construction may be excluded by the context - it is at best only to be applied where the context does not show a contrary intention. It is, therefore, necessary in every case to construe the whole will to see what the testator meant: Butler v The Trustees Executors and Agency Co Ltd (1906) 3 CLR 435. 10 Mr Ellison did not in his written submissions dispute the principles of construction reflected in the cases cited above, but added reference to Perpetual Trustee Co Ltd v Attorney-General (NSW) and Public Trustee (Estate of the late Richard Harris) (NSWSC, 27/3/87, unreported, BC8701477) in which Bryson J (as he then was) said: "I was referred to a number of authorities; however, none of them appears to me to decide any matter binding on me and compelling any particular conclusion on the construction of the will before me, and as always it is necessary to remember the need to construe the words of the instrument in question, the meaning of which is incapable of being established by any earlier judicial decision which does not deal specifically with that instrument itself. The meanings of wills are not to be discovered by reference to a body of jurisprudence which has developed around any particular word or phrase and can be taken to establish a legal meaning for it; the cases cited to me almost all precede the decision of the House of Lords in Perrin v Morgan [1943] AC 399 in which Viscount Simon LC at 406 said the following:- 'My Lords, the fundamental rule in construing the language of a will is to put on the words used the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made his will, but what the written words he uses mean in the particular case - what are the 'expressed intentions' of the testator. In the case of an ordinary English word like 'money, ' which is not always employed in the same sense, I can see no possible justification for fixing on it, as the result of a series of judicial decisions about a series of different wills, a cast-iron meaning which must not be departed from unless special circumstances exist, with the result that this special meaning must be presumed to be the meaning of every testator in every case unless the contrary is shown. I agree, of course, that, if a word has only one natural meaning, it is right to attribute that meaning to the word when used in a will unless the context or other circumstances which may be properly considered show that an unusual meaning is intended, but the word 'money' has not got one natural or usual meaning. It has several meanings, each of which in appropriate circumstances may be regarded as natural'. It is, after all testators who are telling the Courts what dispositions they wish to make, and the process of construction of wills is not a process of legal education administered by Courts to testators." 11 Mr Ellison, in his oral submissions, emphasised the point that a will cannot be rewritten by the Court and that the Court in considering the testator's intention was constrained by the words actually used by the testator, echoing I think, the High Court's rejection of speculation as to the intention of the testator, rather than discerning intention from the words used in the will: Watson v Ralph (1982) 148 CLR 646 ie the "expressed intentions" referred to by Viscount Simon in the passage in Perrin v Morgan [1943] AC 399 set out above. I accept that the Court is concerned with the expressed intentions of the testator, gleaned from the will itself, and aided to a limited degree by regard to the facts and circumstances known to the testator at the time of making the will. 12 The defendants' position is that clause 6 means what it says - monies owing by Mark to the testator at the time of the testator's death are to be deducted from the monies payable to Mark under the will. The amount owing by Mark at the time immediately before the testator's death (see s 21 of the Wills, Probate and Administration Act 1898) was $137,000, the amount payable to Mark was $25,000, therefore no amount is owing to Mark after deduction. 13 The written submissions on behalf of the defendants asserted: "6.7 Clause 6 is complete in itself. It is not referable to any other particular part of the will. It refers to beneficiaries. It does not allow a benefit (such as Mark's legacy) to be credited against his indebtedness. It allows the opposite - indebtedness to be credited against benefit. "6.8 In Mark's case his indebtedness far outweighs the benefit. The benefit (the legacy) must therefore be cancelled." 14 The plaintiffs, in their written submissions, contended:

(1) that Mark did not owe any money to the testator at the date of death because the mortgage was a debt owed by Mark and Beverley, and secondly because the principal under the mortgage secured debt was not required to be repaid until 2021;

(2) that the intention of the testator appears to have been that he "wished to avoid a beneficiary receiving a legacy but not repaying a debt owed to him. The amount owed by the mortgagors was secured by registered mortgage, and, thus, payment to the deceased could not have been avoided by them, or by either of them" (p 12). 15 In oral submissions, Mr Ellison accepted the proposition that the $25,000 amount of the legacy to Mark could be used to reduce the mortgage debt from $137,000 to $112,000 but rejected the proposition that Mrs Reilly should receive the benefit of that payment. He did not agree that the effect of the defendants' contentions amounted to "double dipping" as had been suggested by Mr Hallen in his oral submissions. Indeed the concession that Mark's legacy could be applied to the mortgage debt seemed to undercut the problem of "double dipping" because it would at least see Mark credited with the amount of the legacy. 16 If there are debts owed by the beneficiary of a legacy under clause 3 to the testator, logically the legacy to any beneficiary under the will can be either, on the one hand, equal to or more than any outstanding debt or on the other hand, less than the outstanding debt. Clause 6 seems to proceed on the basis that the beneficiary debts with which it is dealing are smaller than the $25,000 bequest since a larger amount cannot be "deducted" from a smaller amount. 17 In one sense read literally clause 6 might be thought to have no application to debts that are greater than the amount of the legacy, but in any event clause 6 framed as it is, does not expressly direct the Trustees on how to apply the legacy when the debt is greater and does not deal with how payment is to be treated. A literal construction which permits it to apply to debts that exceed the legacy leads to the construction for which the defendants contend in their written submissions, namely that Mark gets nothing, and it would follow that the mortgage debt of $137,000 is passed to Mrs Reilly. To avoid that unfairness to Mark it is necessary to add the concept of a reduction in the mortgage debt, which as the defendants' submissions referred to in [13] above point out is not the subject of clause 6. This highlights that clause 6 is in the context of the entire will ambiguous and that it ought not be read literally. 18 There are a number of factors which lead me to the view that the testator did not intend to deprive Mark of the benefit of the legacy which the testator bequeathed him because he was indebted on the mortgage debt or to require that the amount of Mark's legacy be applied to the mortgage debt without Mrs Reilly receiving that amount as part of the bequest due to her, namely:

(i) the fact that clause 6 appears to contemplate debts that are smaller than $25,000;

(ii) the fact that clause 2(b) provides a direct and clear benefit to Mrs Reilly ie the testator's interest in the mortgage debt; the construction of clause 6 for which the defendants contend has the effect of cutting back the gift of the interest by taking off from that mortgage debt the amount of the legacy to Mark (see the reference to the rule that "when there is a clear gift in a will it cannot afterwards be cut down except by something with which reasonable certainty indicates the intention of the testator to cut it down" in Butler (above) at 439). Clause 2(b)(ii) appears to have been inserted to deal with the possibility that the mortgage debt might have reduced to below $60,000 and it specifically does focus on deduction of the amount of the debt from the bequest. Clause 2(b)(ii) is cumulative to (i) but "my interest in the mortgage" (2(b)(ii)) would be largely but not precisely the same as "the principal remaining unpaid" in 2(b)(ii) indicating that the $60,000 under 2(b)(ii) would not be eroded by unpaid interest. Save for that qualification the testator does indicate an express intention to reduce the benefit to Mrs Reilly in that circumstance;

(iii) the fact that clause 6 does not in terms deal with the effect of its processes upon the clear terms of clause 2(b);

(iv) the fact that, as known to the testator, the mortgage debt was not repayable until 2021 and it was a large debt;

(v) the fact that the mortgage was a joint mortgage to Beverley as well as Mark and that it is very specifically dealt with both in 2(b)(i) and (ii). It is not an unsecured debt and hence one of which Mark would be getting the benefit without repayment. This latter point picks up a theme of the plaintiff's submissions to which I have earlier referred;

(vi) whilst I place less weight on this factor, the fact that if clause 6 has the effect for which the defendants contend (including the concession about reduction of the mortgage debt by the amount of $25,000), then the benefit to Mrs Reilly (of having the $25,000 value of Mark's legacy) will depend on the precise amount of the mortgage debt at the time of the testator's death. This can be demonstrated by assuming at the testator's death that the mortgage debt is (a) $137,000, and (b) $25,000. If it is $137,000 then allowing for the defendants' concession that the $25,000 can be offset against the mortgage she would receive only $112,000. If it is $25,000 then clause 2(b)(ii) operates to see her receive $60,000 without any deduction of the $25,000 because the $25,000 will reduce the mortgage debt to zero. 19 I am inclined to think that these matters lead more naturally to the view that clause 6 should not be read as applying to the legacy to Mark rather than a conclusion that Mrs Reilly should receive, as a payment under the mortgage $25,000, being the amount of Mark's legacy (this is the form of orders 4 and 5 sought in the summons). However Mark is willing to have his legacy applied to reduce the mortgage debt and hence to direct that his legacy be paid to his mother in that character, and noting that the plaintiff's argument favoured that conclusion it does not seem to matter which route is taken, and the executors, with Mark's consent, may pay the amount of $25,000 to Mrs Reilly together with the transfer of the mortgage debt. 20 I have in setting out my reasons referred to the nature of the mortgage as a factor but I did not specifically deal with the plaintiff's contention that the mortgage debt constituted by the mortgage and memorandum Q860000 (Exhibit "A") was not caught by a literal construction of clause 6. The fact that the principal was repayable only in 2021 did not have the result that the mortgage monies were not "owed" (as opposed to payable) in 2003. The plaintiff's submissions accepted that clause 13 of the memorandum provided that covenants bound the mortgagors "jointly and severally" but it was asserted that that meant that each debtor was agreeing to pay the debt of both. Mr Hallen did not push the point with much vigour and it does not seem to me to be correct since Mark by that clause was agreeing that he was severally liable for the debt rather than in effect guaranteeing joint obligations. In view of my conclusion on the other matters I do not need to express a concluded view on this point. 21 The parties should bring in short minutes of order to reflect the conclusions to which I have come, and the second plaintiff's agreement that his legacy of $25,000 is to be paid to his mother. 22 The issue of costs was by agreement deferred until handing down of these reasons. **********

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