Supreme Court of WA|2007-12-07|Before: Mr P, Heenan J, Jenkins J

THE PUBLIC TRUSTEE As Executor of the Will of KAROLINE LILLY FIEDLER -v- FIEDLER [2007] WASC 296 (7 December 2007)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : THE PUBLIC TRUSTEE As Executor of the Will of KAROLINE LILLY FIEDLER -v- FIEDLER [2007] WASC 296

MATTER : Section 90 of the Trustees Act 1962

The Will and Estate of KAROLINE LILLY FIEDLER (Dec)

BETWEEN : THE PUBLIC TRUSTEE As Executor of the Will of KAROLINE LILLY FIEDLER

Trustees Act - Application for approval of arrangement varying a trust - Variation potentially affecting interests of unborn children - Whether arrangement to the detriment of any unborn children

Seventh Defendant : State Solicitor for Western Australia

1 JENKINS J: This application is brought by an originating summons dated 18 May 2007. The plaintiff, the Public Trustee as executor of the will of Karoline Lilly Fiedler (testator), seeks orders approving, on behalf of any unborn children of the first, second, third or fourth defendants, an arrangement whereby the estate of the testator is distributed as to one quarter to the first defendant, one quarter to the second defendant, one quarter to the third defendant and one quarter, in equal shares, to the fifth defendants.

2 The application is brought pursuant to the Trustees Act 1962 (WA) s 90. When this matter was first listed for hearing, I raised with counsel for the plaintiff whether the interests of any unborn children should be separately represented. Counsel for the plaintiff advised me that, whilst that was an option, as the estate was only worth approximately $240,000, she had not arranged for such representation. I referred counsel to Hamersley v Newton [2005] WASC 221; (2005) 30 WAR 568 [15] - [16] where Heenan J considered that it was necessary to give directions for the interests of unborn children to be represented. His Honour directed that the originating summons be amended, the Attorney General of Western Australia be joined as a second defendant in the proceedings and the plaintiff pay the costs of the Attorney General in the proceedings in any event. Heenan J said:

The role of the Attorney General in this respect is to represent, in the exercise of his parens patriae jurisdiction, the interests of any future unborn sons of Leonard Colin Hamersley in events which might happen - see Secretary, Department of Health and Community Services v JWB and SMB, Marion's Case [1992] HCA 15; (1992) 175 CLR 218 and Minister for Health v AS [2004] WASC 286; (2004) 29 WAR 517.

3 Upon deciding that the interests of any unborn children in this case should be separately represented, I made an order joining the Attorney General as the seventh defendant. The proceedings were then adjourned to enable the Attorney General to be served and to be heard.

4 At the resumption of the hearing, the Attorney General was represented by counsel. Counsel had filed extensive written submissions in respect to the parens patriae jurisdiction and the role of the Attorney General in respect to it. The conclusion reached in the submissions is that the appointment of the Attorney General to represent unborn children in a matter which does not raise broad public interest issues is not consistent with the established understanding of the parens patriae jurisdiction as it has developed and is exercised. Rather, it is submitted, that should the court be of the view that any unborn children requires representation, the court should adopt the practice used in other jurisdictions in which an appropriate individual is appointed to represent any unborn children.

5 Counsel for the Attorney General relied upon Marion's Case [1992] HCA 15; (1992) 175 CLR 218 where Brennan J said:

Although a power to authorize a therapeutic sterilization resides in parents or other guardians, its exercise is subject to supervision by the court in exercise of its parens patriae jurisdiction. That jurisdiction was originally vested by the royal prerogative in the English Court of Chancery and is vested in courts whose jurisdiction is defined by reference to the jurisdiction of that Court as it stood before the warrant delegating the prerogative power to the Lord Chancellor was revoked. The nature of the jurisdiction was stated by Lord Esher MR in Reg v Gyngall:

'The court is placed in a position by reason of the prerogative of the Crown to act as supreme parent of children, and must exercise that jurisdiction in the manner in which a wise, affectionate, and careful parent would act for the welfare of the child.'

The parens patriae jurisdiction has become essentially protective in nature and protective orders may be made either by the machinery of wardship or by ad hoc orders which leave the guardianship and custody of the child otherwise unaffected. The court is thus vested with a jurisdiction to supervise parents and other guardians and to protect the welfare of children.

6 Thus, the Attorney General submitted that although the parens patriae jurisdiction was derived from the Crown's right to intervene in the affairs of minors, it devolved at an early stage on the court. At that time the jurisdiction's source in the Crown's direct responsibility for such person ceased to be relevant.

7 Counsel for the plaintiff supported these submissions and suggested that if the interests of unborn children needed to be represented then Supreme Court Rules 1971 (WA) O 18 r 13 provided the mechanism for that to occur by the court appointing one or more persons to represent an unborn person or a class of persons.

8 In my opinion, it is not appropriate that this case be used by me to determine the rights, duties or obligations of the Attorney General in respect to the parens patriae jurisdiction. This is simply because there has been no contradictor to the Attorney General's position. It is sufficient for me to say, that given the submissions of the Attorney General, it is doubtful whether it was appropriate to join the Attorney General to represent the interests of any unborn children of the defendants.

9 Were it not for the willingness of counsel for the Attorney General to make submissions as amicus curiae, it would have been appropriate for me to either appoint a representative of the unborn children of the defendants or to adopt the English practice, referred to in Re Christmas' Settlement Trusts [1986] 1 Qd R 372, of requiring the plaintiff to provide to the court a written opinion by counsel instructed on behalf of the unborn beneficiaries. I have decided that it is unnecessary for me to take those steps given the helpful submissions made by counsel for the Attorney General as amicus curiae. In my view, those submissions are entirely independent of the interests of the plaintiff and other potential beneficiaries under the will. Thus, they are an adequate replacement for the submissions of a practitioner appointed to represent any unborn children or the opinion of counsel.

10 The testator died on 30 May 2004. On 5 April 2006 the plaintiff was granted probate of the will of the testator. The will was executed on 22 September 1985. After appointing the plaintiff executor, the will provides:

The House and Infestments to my sons, Freddy Gary & Karl. My Son Wallys share goes to his Children for he is a Selfish Pig and gets only 50 Dollars.

The part of Karls and Garrys share to be Infested in a Flat and if the Havent any Children, Then there Part goes bak to the Children of the Brothers. And if one of my Sons should die then his Part goes to his Children not his Wife.

Wallys Childrens share to be infested for them till the are 25 years of age. There are 20,000 Dollar in Telecomm Bonds the Rest is in the Bank.

11 The testator died leaving no living spouse or de facto partner. She had four children, being the first to fourth defendants. It is plain that, whichever interpretation of the will is correct, they are respectively, 'Freddy', 'Gary', 'Karl' and 'Wally' referred to in the will. For the sake of convenience, I will refer to the first to fourth defendants by those names.

12 Freddy is 51 years of age and has three children, the sixth defendants. They are aged 23, 24 and 29, respectively. The third named sixth defendant is Freddy's step-son. Freddy regards his step-son as his child and he was treated by the deceased as her grandson. Freddy has been surgically sterilised. Freddy's wife is beyond child bearing age.

13 Wally is 49 years of age and has two children, the fifth defendants. They are aged 33 and 34, respectively. In 1973 he married his wife, the mother of the fifth defendants. His wife is beyond child bearing age. Wally was surgically sterilised in or about 1975. He has been told that the procedure is irreversible because of medical complications. He does not intend to adopt any children.

14 Gary is 46 years of age. He was divorced in 2007 and he has no plans for having children in the future. He does not have any children.

15 Karl is 57 years of age and does not have any children.

16 All the defendants have agreed to an arrangement whereby the estate of the testator is distributed in equal shares to the first, second, third and fifth defendants; the fifth defendants taking equally their one quarter share.

17 The only possible beneficiaries under the will who have not consented to the arrangement are any unborn children of the deceased's four sons.

18 The plaintiff submits that the court has power to approve the arrangement pursuant to the Trustees Act s 90(1)(c).

19 Relevantly, s 90 states:

(1) Without limiting any other powers of the Court, it is hereby declared that, where any property is held on trusts arising under any will, settlement or other disposition, or on the intestacy or partial intestacy of any person, or under any order of the Court, the Court may, if it thinks fit, by order approve on behalf of -

...

(c) any unborn or unknown person_;_ or

...

any arrangement (by whomever proposed, and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts.

20 Section 90(2) and (4) state:

(2) ... the Court shall not approve an arrangement on behalf of any person if the arrangement is to his detriment_;_ and, in determining whether any such arrangement is to the detriment of a person, the Court may have regard to all the benefits that may accrue to him directly or indirectly in consequence of the arrangement, including the welfare and honour of the family to which he belongs.

...

(4) Any rearrangement approved by the Court under subsection (1) is binding on all persons on whose behalf it was so approved, and thereafter the trusts as so rearranged shall take effect accordingly.

21 On my analysis of these provisions there are certain matters that I must be satisfied of before I can make the order sought by the plaintiff. Those matters are:

That property is held on trust arising under the will or on the intestacy or partial intestacy of the testator;
The arrangement seeks to vary or revoke all or any of the trusts; and
The arrangement must not be to the detriment of any unborn children of the first to fourth defendants.

22 In deciding whether the arrangement is to the detriment of any unborn children I may have regard to all the benefits that may accrue to the children directly or indirectly in consequence of the arrangement, including the welfare and honour of the family to which the unborn child belongs.

23 In respect to the first requirement, the plaintiff says that whatever the meaning of the will, she holds the property of the deceased on trust for the beneficiaries. The trust either arises out of the express terms of the will and the role of the plaintiff as executor of the estate or the provisions of the Administration Act 1903 (WA) s 4 - s 12 which apply in the case of an intestacy or partial intestacy.

24 As to the second requirement, the terms of the will are capable of being interpreted so as to create a number of different trusts.

25 The plaintiff submitted that it is not clear whether the will created an absolute gift to Gary and Karl (the additional wording being void as being an attempt to limit an absolute gift), whether it created a life interest for Gary and Karl, with the remainder interest passing to their children or to the children of Freddy and Wally if Gary and Karl did not have any children or it resulted in some other construction or it was void for uncertainty.

26 There are also difficulties with the construction of the legacy to Wally but I need not deal with them here.

27 The situation is that if certain constructions of the will were adopted they may provide a direct benefit to any grandchildren of the testator, alive at some future time. If the order sought by the originating summons is granted then such unborn grandchildren will never directly benefit from the will.

28 If the will is void and the testator died intestate or partially intestate the trusts created by the Administration Act would not be put into effect if the arrangement is approved.

29 If the will is valid, no matter what construction of it is adopted, the application seeks to vary or revoke all or any of the trusts created by it.

30 In respect to the third requirement it is appropriate that I first consider some of the principles that have emerged from the cases on s 90 and similar legislation in other jurisdictions.

31 The proper construction of s 90 was considered by Hasluck J in Muhling v Perpetual Trustees WA Ltd as Executor and Trustee of the Estate of Herbert Ross Andrew (Dec) [2001] WASC 225. In that case the plaintiffs, being a woman and her children, asked the court to approve on behalf of the woman's unborn children a revocation of a trust created by the will of her father. The effect of the will was that a life interest in the income of the father's residuary estate was given to the woman. Upon the death of the woman, the father gave the residuary estate as to both capital and income to be divided between such as the children of the woman and his other daughters who shall attain or shall have attained the age of 25 years. The revocation of the trust transferred the assets the subject of the trust to the beneficiaries so that 60 per cent of the assets went to the woman absolutely and the balance to her then living children as tenants in common in equal shares.

32 In the course of his reasons for decision, Hasluck J considered the nature of the power given in s 90 and the manner in which it should be exercised. His Honour said:

It is clear that the power to approve conferred by s 90(1) is discretionary. In essence, the power of the Court is to give its consent or approval on behalf of those beneficiaries or potential beneficiaries, infants, unborn and ascertained persons who, by reason of those and other disabilities, are incapable of consenting. The process is one in which the Court, in effect, joins with beneficiaries who are sui juris and entitled to the trust property so that they may exercise their proprietary rights to modify the intention of a testator: Palmer v McAllister (1991) 4 WAR 206.

A function of the Court on an application of this nature is to act as a substitute for the persons who are incapable, either because they lack capacity or because they are not born, to signify their consent. The proposal for variation is to be considered as a whole and, although the application may be designed to interfere with or modify the intention of the settlor, if there is no detriment likely to accrue to any person contingently interested and all interests will best be served by carrying into effect the proposed modification, then the application will be approved: Faye & Ors v Faye & Ors [1973] WAR 66.

Where, whilst the scheme proposed would be generally beneficial, there is a risk of detriment to the person or class of persons in respect of whom the Court's approval is sought, the Court may have regard to the degree of risk and, if it is a risk that an adult would be prepared to take to achieve the benefits to be derived from the scheme of rearrangement, then the Court may take that risk on behalf of the person or persons for whom its approval is sought: Re Cohen's Will Trusts [1959] 3 AER 523. [25] - [27]

33 Hasluck J went on to say that he was satisfied that the discretionary power allowed to the court by s 90 should be exercised in the manner proposed. His Honour took into account that the woman had no intention or desire to have more children. She did not consider that there was any possibility that she would have more children. His Honour acknowledged that, theoretically, any future unborn child of the woman would arguably have a contingent interest in the income and capital comprising of the trust. He regarded that there was only a remote likelihood of such an interest being asserted. He concluded that it was difficult to see that any party with an actual or potential interest in the trust was likely to be exposed to a detriment by the orders sought.

34 Muhling was the second decision of by this court in respect to the trusts created by that will. In Stanbrook v Perpetual Trustees (WA) Ltd, (Unreported, WASC, Library No 980445, 24 July 1998) Murray J granted orders sought by the woman's sisters and their children to a similar effect to those sought in Muhling's case. Murray J found that so far as any unborn potential beneficiaries may be concerned, the risk of any possible detriment was so remote that it should not be allowed to stand in the way of the generally beneficial arrangement proposed.

35 Section 90 was enacted in Western Australia following the enactment of the Variation of Trusts Act 1958 (UK) which contains a similar provision. The English provision requires the court to find that the carrying out of the arrangement is for the 'benefit' of every person on whose behalf the court is concerned to approve the arrangement. Having so satisfied itself, the court must be further satisfied that the arrangement is in nature fair and proper.

36 A number of English cases have considered this provision. They are not directly applicable because of the difference in the wording of the legislation. However, they illustrate the differing views that have been taken of a similar legislative provision. In Re Westons Settlements [1969] 1 Ch 223 245 Lord Denning MR said that the court should not consider merely the financial benefit to the infants or unborn children, but also their educational and social benefit. His Lordship said that there were many things in life more worthwhile than money. In respect to the facts of that case, his Lordship found that it was not for the benefit of children to be uprooted from England and transported to another country simply to avoid tax.

37 In Re Holt's Settlement [1969] 1 Ch 100 Megarry J considered a number of issues. In respect to the merits of the arrangement proposed in that case, his Honour agreed with an earlier case that in exercising the jurisdiction under the provision the court must, on behalf of those persons for whom it was approving the arrangement, take the sort of risk which an adult would be prepared to take. He distinguished the facts of that case where it was possible that an unborn child would have the vesting of his interest in a trust postponed from the age of 21 to 30 years from the case where an unborn person would be deprived in whole of any interest under the trust. In the former case his Honour concluded that an unborn person fell into the category of unborn persons on whose behalf the court should be prepared to take a risk if the arrangement appears on the whole to be for their benefit.

38 In Re CL [1969] 1 Ch 587 Cross J was prepared to vary a trust so that a mentally ill woman surrendered, for no consideration, her protected life interest in a settlement made to her and her contingent interest in the remainder, in favour of her adopted daughters. Cross J found that as a consequence of the arrangement there would be a great saving in estate duty and having regard to the income tax and surtax which she had to pay, the reduction in her spending income would be trifling. He found that if she were capable of managing her affairs, it was almost certain that her legal advisers would advise her to consent to the arrangement for the benefit of her adopted children. His Honour found that there need not always be some element of financial advantage to the infant or otherwise incapable person in question before an arrangement could be said to be for his or her benefit.

39 The final English case to which I refer is in Re Remnant's Settlement Trusts [1970] 2 All ER 554. In that case Pennycuick J decided that the phrase educational and social benefit used by Lord Denning in Re Western Settlements was not used in any restrictive sense. He found that the court was entitled and bound to consider not merely financial benefit but benefit of any other kind. In that case his Honour varied a trust by deleting forfeiture provisions which, if they took effect would have denied some potential beneficiaries the benefit of the trust. By deleting the forfeiture provision the court prevented other beneficiaries from benefiting from the potential forfeiture of other beneficiaries' interests.

40 In Queensland, the corresponding statutory provision is similar to the English provision in so far as it requires the court to find that the arrangement is for the benefit of the infant or unborn person. In Re Christmas' Settlement Trust MacPherson J found that an arrangement which would deprive an infant and any further possible children of income from a trust was not for their benefit. It had been suggested that such beneficiaries would have the advantage of a wealthier parent and other compensations of belonging to a more affluent family. MacPherson J considered that any benefit accruing to the child would be of a remote, indirect and insubstantial kind. He said that it could not be said that the relatively uncertain advantages of having a wealthier parent necessarily outweighed the relative certainty of property rights even if not significant in amount or value.

41 In Re Ritchie's Will Trusts [2005] QSC 081 Helman J considered an application to vary a trust established under a will by varying the term of the trust from 20 years from the date of death of the deceased to a period of 30 days from the date of his death. Under the terms of the trust the class of beneficiaries would not close until 2022. The effect of the variation would have been to crystallise the potential beneficiaries under the will at a much earlier time. The children of the testator had all asserted that they would not have more children. Helman J found that the order sought would clearly not be for the benefit of any as yet unborn child of the children of the testator, because the effect of the order would be to deprive that child of any relevant benefit under the will.

42 Bearing these cases in mind, I now turn to consider the facts of this case.

43 Given the ages of the testator's sons and their respective situations it seems highly unlikely that they will have more children. However, given that it is theoretically possible for them to have children, it is appropriate that the interests of any unborn children be taken into account in respect to the proposed arrangement.

44 The question of whether the proposed arrangement is to the detriment of any unborn children of Freddy, Gary, Karl and Wally must be determined by contrasting, so far as possible, the position of such children if the arrangement not be approved with their position should it be approved.

45 It is easiest to first consider the position of any unborn children under the proposed arrangement.

46 Under the proposed arrangement, any unborn children will not receive any direct benefit. As to indirect benefit, any unborn children of Freddy, Gary and Karl will indirectly benefit because their fathers will each receive 25% of the testator's estate. This will indirectly benefit any unborn children as I am prepared to assume that their father, out of natural love and affection or as required by law, would financially support them. Thus, it would also be an indirect benefit to these unborn children that the estate would be able to be distributed without the need for possibly costly litigation to determine the validity and meaning of the will.

47 As to the welfare of the unborn children's family, under the proposed arrangement this would be enhanced in the case of any unborn child of Freddy, Gary and Karl because of their father's increased wealth. This would be so even in regard to any part of the estate that was not used to directly support any unborn children.

48 As to the honour of the family, it is to the family's honour that they have agreed to the proposed arrangement without the need for litigation. Any unborn child of the first to fourth defendants would be likely to benefit from the credit which the family receives for agreeing to the arrangement without such litigation. Commonsense indicates that it will result in more harmonious relations between family members.

49 If the arrangement is not approved on the part of any unborn children, then it is unclear what, if any, direct benefit any unborn children will obtain under the will.

50 On one view, those parts of the will which purport to distribute the estate are void with the consequence that any unborn children would not directly benefit under the will. This is because, if the testator died intestate, under the provision of the Administration Act, only the testator's children would be entitled to participate in the distribution of the estate.

51 On another view, the estate is to be held in trust by the plaintiff to be distributed to Freddy, Gary, Karl and Wally's two living children (the fifth defendants). Similarly, this would result in the unborn children not receiving any direct benefit under the current trust.

52 A third view is that under the will Freddy is to receive a 25% share of the estate and Wally's two living children (the fifth defendants) are to receive a 25% share. In respect to the balance of the estate, Karl and Gary are to receive a life interest which upon their death is distributed to their children or, if they have none, to the children of Freddy and Wally. Under this trust, any unborn children of Karl and Gary or if they have none, Freddy and Wally, if born before the death of Karl and Gary, would directly benefit in a share of the remainder of 50% of the estate.

53 A fourth view is that Freddy, Gary and Karl are to receive a life interest in 75% of the estate with the remainder being left to their children and Wally's children upon their fathers' deaths. On this construction, the unborn children would receive a direct benefit from the estate upon the death of their father and uncles.

54 Because the language of the will is imprecise, and because of its apparent internal inconsistencies it is not possible for me to state with any certainty the meaning of the will or to declare its validity. Its validity and meaning could only be ascertained in an action where all parties were joined to determine those issues. It is not even possible for me to say that the various interpretations, mentioned above, are the only possible interpretations of the will. The plaintiff and counsel for the Attorney General have suggested other permutations.

55 What is clear is that it is doubtful whether there is any direct benefit which any unborn children of the first to fourth defendants will receive under the will or on an intestacy. It is also quite possible that any unborn children of one of the testator's sons may receive a direct benefit that any unborn children of another son would not receive.

56 As to the indirect benefits, any unborn children would receive the benefit of the increased wealth of their father, if their father was to directly benefit under the will. Of course, the extent to which any of the testator's sons would benefit under the will is also in doubt.

57 As against any direct or indirect benefit which any unborn children may receive, the expense, risks, length and uncertainties of the litigation which appears to be inevitable, in the absence of the arrangement, to determine the validity and meaning of the will are detriments, financial and non-financial, that would accrue to any unborn children and to the welfare and honour of their family.

58 This is an unusual case because it is the meaning of, and the validity of the will which creates the trust is uncertain. The plaintiff has not asked me to construe the will. In any event, I do not believe that it would be appropriate for me to do so in this application as the parties to it have not had an opportunity to be heard in respect to the proper construction of the will. However, even in the absence of a determination of the meaning and validity of the will, and perhaps because of the lack of a clear meaning of it, I am of the opinion that the discretionary power granted to the court by s 90 ought to be exercised by approving the arrangement agreed to between the parties. In my opinion, the arrangement is not to the detriment of any unborn children of the testator's sons.

59 It is apparent to me that it is highly unlikely that there will be any living unborn children of the testator's sons on behalf of whom I am asked to approve the arrangement. Even if a member of that class was born, it is very doubtful as to whether they would receive any direct benefit under the will. It is also unclear as to what indirect benefit they would receive under the will. If the arrangement is approved, any unborn children of Freddy, Gary and Karl would receive indirect benefits. These indirect benefits would be financial as well as non-financial benefits in respect to the welfare and honour of the Fiedler family. In the case of any unborn children of Wally, the only indirect benefit that he or she would receive would be in respect to the honour of the family.

60 There is undoubtedly a benefit to any unborn children in the limited assets of the estate being distributed in a fair manner between the testator's family as soon as possible and with as little cost to the estate and the various members of the family as possible. Any unborn children are members of the family and receive an indirect benefit from such a result.

61 Taking all these matters into account, I am of the view that the court ought to exercise its discretion to approve the arrangement.

THE PUBLIC TRUSTEE As Executor of the Will of KAROLINE LILLY FIEDLER -v- FIEDLER [2007] WASC 296 (7 December 2007)

At a glance

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Judgment (82 paragraphs)

THE PUBLIC TRUSTEE As Executor of the Will of KAROLINE LILLY FIEDLER -v- FIEDLER [2007] WASC 296 (7 December 2007)

Legislation Cited (2)

Cases Cited (4)