_Underwood v Underwood_

Supreme Court of Queensland|2007-04-19|Before: Jones J

[1] The applicants are three of the four surviving children of Peter Charles Underwood, deceased (hereinafter "the testator") who died on 9 May 2006 leaving a will which he executed on 17 October 2003. The remaining child is joined as the second respondent but takes no part in the application. The applicants seek declarations as to the true construction of three paragraphs in Clause 3 of the testator's will.

[2] The testator appointed as co-executors and trustees Michael Wedrat, his accountant and Louis Underwood. Louis Underwood and his brother Glen Underwood were the trustee's nephews, the sons of the testator's late brother John Underwood who died in 1973.

[3] The four children surviving the testator were born respectively on the following dates:-

One child, Amanda, pre-deceased the testator but left three children who have received individual bequests under the will.

[4] The testator's marriage to the children's mother, Annette Underwood, ended in divorce before the execution of the will.

[5] The testator's execution of his will was preceded by considerable discussion between his solicitor Mr Roy Payne and his accountant Mr Wedrat and in joint conference with the testator.[1] At the time of his death he owned a variety of property interests in respect of which he made specific dispositions in his will. They included a residence and its contents at 47 Granadilla Drive, Earlville, paintings, a share portfolio, cash deposits and an interest in each of the following business:-

(i) Total Exhibition Rentals - (para 3(k) of the will)

(ii) Underwood Holdings Pty Ltd - (para 3(l) of the will)

(iii) A.L. Underwood & Sons Pty Ltd - (para 3(m) of the will)

(iv) A.L. Underwood & Sons Trading as Underwood Party Hire - (3(n) of the will)

[6] Over time and associated with the business activity eight parcels of land were acquired. Five of these were purchased by the founders of the business Alfred Underwood, deceased, (the testator's father), John Underwood, deceased, (the testator's brother) and the testator himself. These five properties may be identified as -

Following the deaths of John and Alfred, the ownership in the properties changed by reason of survivorship or by devise.

[7] The other three properties - 102 Buchan Street, 106 Buchan Street, 123 Hartley Street were purchased in different combinations between Alfred Underwood, deceased, the testator, Louis Underwood and Glen Underwood.

[8] The purchases in the main were strategic acquisitions for the purpose of expansion of the business interests. In some instances the purchasers were inadvertently registered as joint tenants. On the death of John and later Alfred there was an unintended consequence of some property passing by survivorship to other partners rather than to immediate family members.

[9] Of these properties five are used for the conduct of the businesses referred to above. They are identified in Clause 3(j) of the will as set out hereafter. The manner in which the testator's interest in these five properties ("the subject lands") is to be disposed of is the sole issue on this application. The applicants no longer pursue that part of the application which relates to the business Total Exhibition Rentals (Clause 3(k)) nor the business Underwood Party Hire (Clause 3(n)). However for the convenience of understanding the arguments on the issue, I shall set out in full the parts of Clause 3 of the will.

[10] By clause 3 of the will the testator gave the whole of his real and personal estate unto his trustees upon trust to pay all duties, debts, funeral testamentary expenses and then to give effect to specific bequests in relation to various items of property. Clause 3 then goes on to provide as follows:-

(f) To sell my property at 47 Grandadilla Drive, Earlville, Cairns and pay the net proceeds of sale after payment of agent's commission, legal costs or any other costs associated with the sale in the following manner:-

(i) 25 per centum to each of my children GREGORY PETER UNDERWOOD, DEREK JOHN UNDERWOORD and SCOTT ANDREW UNDERWOOD;

(ii) 25 per centum to my Trustees to hold on trust for my daughter, PETA CHANEL UNDERWOOD I DIRECT my Trustees to invest the funds and to pay annually, one tenth of the principal together with any interest thereon (after deduction of any expenses incurred by my Trustees) calendar monthly in arrears to a bank account nominated by my said daughter.

(g) To convey my property at 108 Buchan Street, Cairns to such of my nephews, LOUIS UNDERWOOD and GLEN UNDERWOOD as shall be provided to have survived me and, if more than one, in equal shares between them as tenants in common.

(h) To convey my share of the property at 106 Buchan Street, Cairns to such of my nephews, LOUIS UNDERWOOD and GLEN UNDERWOOD as shall be proved to have survived me and, if more than one, in equal shares as tenants in common.

(i) To convey my share of the properties at 102 Buchan Street, Cairns and 123 Hartley Street, Cairns to my nephew, GLEN UNDERWOOD for his sole use and benefit absolutely.

(j) To convey my share of the properties at 100 Buchan Street, Cairns 125 Hartley Street, Cairns and 19, 21 and 23 Bollard Street, Cairns as to one third to my nephew, GLEN UNDERWOOD and one sixth to my nephew, LOUIS UNDERWOOD.

(k) To convey my one third interest in the business of Total Exhibition Rentals in the proportion of one sixth to my nephew, LOUIS UNDERWOOD and one sixth to my nephew, GLEN UNDERWOOD.

(l) To convey any shares which I own in the company, Underwood Holdings Pty Ltd, to my nephew, GLEN UNDERWOOD.

(m) To convey any shares which I own in the company AL Underwood & Sons Pty Ltd, to my nephew LOUIS UNDERWOOD.

(n) To convey a one third interest in the businesses of Underwood Hire and Underwood Party Hire in the following manner:-

(ii)one sixth to a company which I direct my Trustees to incorporate, the directors of which will be my Trustees, and which will have two issued ordinary shares, one of each will be held by my Trustees. The sole purpose of this company will be to act as trustee for the trusts established pursuant to this clause of my will. I DIRECT my Trustees as directors of the trustee company to cause it to hold its interest in trust for my sons, GREGORY PETER UNDERWOOD, DEREK JOHN UNDERWOOD, and SCOTT ANDREW UNDERWOOD as shall be proved to have survived me and if more than one, in equal shares between them as tenants in common. I DIRECT my Trustees, as directors of the trustee company to cause any net income to which this trust is entitled after payment of all costs and expenses, including those incurred by my Trustees as Trustees of the estate, or as directors of the trustee company, to my sons in equal shares at such times as my Trustees, in their sole discretion, shall determine. If any losses are incurred by the businesses in which this trust has an interest, and the beneficiaries of the trust do not, upon the request of the Trustees, pay an amount equal to those losses to the Trustees, any share of the capital of the businesses to which this trust is entitled upon the sale of the business assets be reduced by an amount equivalent to the losses, AND I DIRECT my Trustees to make appropriate adjustments in the payment of any capital to which the beneficiaries of this trust may be entitled to take into account any monies owing by those beneficiaries as a consequence of them not contributing to losses in the manner contemplated by this clause AND I DIRECT that my Trustees have the unfettered discretion to sell the said interest in Underwood Hire and Underwood Party Hire at their discretion and that my sons shall not be entitled to a distribution of any capital with respect to this share of, or their beneficial interest in the businesses until the businesses are sold.

(o) To pay, convey and/or divide the rest and residue of my estate amongst such of my children as shall be proved to have survived me for the period of one calendar month and, if more than one, then in equal shares between them as tenants in common.

[11] It should be noted that the business of Underwood Hire was sold between the date of the testator's will and his death, so the only business to be disposed of by the testator was his interest in the partnership Underwood Party Hire whose members were - testator, Louis Underwood, Glen Underwood, Jill Underwood and the company A.L. Underwood & Sons Pty Ltd of which the testator and Louis Underwood were equal shareholders.

[12] The subject lands referred to in clause (j) are valued at $1,730,000. The testator's "share" in the subject lands was a one half interest capable of disposition by his will. As at the date of his death, Louis Underwood owned a one sixth interest and John Underwood's widow, Jill, owned a one third interest.

[13] When executing his will, the testator signed a letter explaining why he made the testamentary provisions in the terms of which they appear in the will, in particular he said:-

(a) "The businesses in which I have an interest have been in the Underwood family for many years. Originally, Alfred Louis Underwood and John Louis Underwood and myself owned the land on which the businesses were conducted and established the businesses, and our wives were included as partners in the businesses but did not have an interest in the real estate and the real estate remained in the male line of the families.

(b) My children have shown no interest whatsoever in the businesses, my children, Greg and Scott, were given an opportunity to be part of the businesses but did not succeed in those endeavours for reasons known only to themselves. My son Derek showed no inclination to have anything to do with the business whatsoever.

(c) My nephews, Louis Underwood and Glen Underwood, are the only persons who have shown an interest and have worked in the businesses since they were apprentices and have worked very hard for many years on very basic wages and have been the reason why the businesses have succeeded, and why the businesses have grown with much of the income from the businesses being reinvested in the business assets.

(d) My daughter, Peta Chanel Underwood, is presently 24 years old and has been drug dependant for approximately 10 years. She has not established a career and has been on Social Security benefits for many years. The reason I have established a trust to hold her interest in my estate is to protect her from herself so that she is not given large sums at any one time which are used to support the habit."[2]

[14] As mentioned the testator's share in the subject lands was a one half interest. The applicants contend that upon the plain reading of clause 3(j), the testator intended to convey to his nephews one half of his interest in the proportions of one sixth to Louis and one third to Glen. The remaining half interest would fall for distribution pursuant to the residual estate provision of clause 3(o).

[15] The respondents contend that properly construed the testator intended to convey his half interest and to do so in the proportions of one third to Glen and one sixth to Louis. The respondents contend that this construction arises form the ordinary meaning of the words, but if there is ambiguity arising from their words that construction is in accordance with the testator's intention when regard is had to the surrounding circumstances. They point particularly to the structure of the other dispositions which clearly demonstrates the testator's intention. The surrounding circumstances include the history of the business development, the acquisition of the subject lands, the relative contributions by beneficiaries to the business, the interests in the business and the subject lands and how those interests changed between the lands acquisition and the testator's death.

[16] It is trite law that the testator's intention is to be determined from the words expressed in the will. The intention is to be found having regard to the terms of the will as a whole together with any permissible extrinsic evidence. What extrinsic evidence is permissible is determined by longstanding rules of construction of wills and various statutory provisions, the most recent of which are the additions to the Succession Act 1981 (Qld) which came into effect on 1 April 2006.

[17] The respondents argue that resort to extrinsic evidence encompassed by what is defined as the armchair rule makes clear the testator's intention. This rule, as well as some general rules, are compendiously expressed in the decision of Blackburn J in Allgood v Blake[3] as follows:-

"The 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. And the general rule, we believe, is undisputed, that, in trying to get at the intention of the testator, we are to take the whole of the will, construe it altogether, and give the words their natural meaning (or, if they have acquired a technical sense, their technical meaning), unless, when applied to the subject matter which the testator presumably had in his mind, they produce an inconsistency with other parts of the will, or an absurdity or inconvenience so great as to convince the court that the words could not have been used in their proper signification, and to justify the Court in putting on them some other signification which, though less proper, is one which the Court thinks the words will bear.

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."

[18] A determination of what were the facts and circumstances which were in the mind of the testator when he made his will is much more certain in this case because he prepared a statement of reasons explaining why he disposed of property the way he did. This makes the view of the surrounding circumstances from the "armchair" quite clear in this case. His factual statements about the acquisition of the subject lands, their relationship to the family business and as to the conduct of the business are supported by evidence from his accountant, Mr Wedrat, and his business partner, Louis Underwood. It is correct, as the applicants assert, that in the testator's explanation he does not make the slightest mention of his intention in relation to the disposition of the properties. But as a statement of fact the content of the testator's explanation is not challenged nor indeed, are other facts relied upon by the respondent. These include who owned the various interests in the business partnership, the manner in which the work of the partnership was undertaken by Louis Underwood and Glen Underwood, particularly since the testator's role was reduced in 1987; and the fact that the business was conducted on the subject lands which were owned by the testator, Jill Underwood and Louis Underwood, in the proportions referred to in paragraph [12] above.

[19] But what is particularly significant in identifying the expressed intention of the testator is the arrangement for the disposition of the other items of property. In paragraph (f) the testator disposes of the family home - effectively dividing the beneficial interest equally between his four children. In paragraphs (g) - (m) he disposes of his interests in the various properties which collectively might be described as business assets. Putting to one side the subject lands, the testator disposed of the whole of his interest in each of those assets, with one exception, in a particular way. They passed either to Glen Underwood or to Louis Underwood or to both of them in specific fractions. Known to the testator at the time of making his will, was the interest each of them had in the property in which he was disposing of his interests and the consequence of his bequest. In each case to the extent possible the result was to equalise the shareholding of Glen and Louis.

[20] The exception was the property in paragraph (n) which requires separate consideration because it conveyed the business of Underwood Party Hire which not only had a capital value but also provided an income stream. The third interest which the testator disposed of was again the whole of his interest in the business. By giving a one sixth share to Glen he equalised the interests of Glen and Louis in the business. But importantly, by limiting the interest given to his three sons to a right to a distribution of capital only when the business was sold, the testator prevented their capacity to disrupt the business.

[21] I turn then to the effect of the competing interpretations on paragraph (j). The applicants' contention would have the result that this would be the only instance where the testator did not dispose of his whole interest in an item of property. It would differ from the other devises in that whilst it would achieve a quality between the interests of Glen and Louis, it would introduce new persons, the four residuary beneficiaries, each with an interest of one twentieth in the subject lands which are critical to the operation of the business.

[22] It cannot be doubted that the testator wished to see the business continue to operate under the control of his nephews Glen and Louis. The construction proposed by the respondents would result in the subject lands and the business conducted thereon remaining under the control of the nephews as had been the case since the testator's retirement from active participation in 1987.

[23] Further, the construction contended for by the applicants would place Peta Underwood in a position of having access to the proceeds of any sale of her interest in the subject lands. Given the testator's control over her share of the proceeds of the sale of the family house (cl. 3(f)) and his denial of her sharing in the income stream from the business (cl. 3(m)), it is unlikely that he intended her to share in any devise of the valuable subject lands such that she could realise the value of her share.

[24] I am satisfied that once regard is had to the permissible evidence of the surrounding circumstances in accordance with the "armchair rule", a reading of the will in its entirety makes plain that the testator's intention was that Glen and Louis Underwood should share the whole of his interest in the subject lands. I would construe clause 3(j) accordingly.

[25] Counsel for both sides drew my attention to the new provisions of the Succession Act. I am grateful to them for the extent and quality of their researches made to assist the Court in defining the scope of the new provisions. In the end result neither party argued for the applicability of s 33C to the issues and my own view is that resort was not necessary to its facilitating provisions. It is thus both unnecessary (and perhaps artificial) to make further reference to this action when it cannot have any influence on the outcome. I remain grateful however to Counsel for the efforts to which they went to provide enlightenment as to the scope of this new provision.

[26] 1. It is declared that upon the true construction of the last will of the late Peter Charles Underwood executed 17 October 2003 that pursuant to Clause 3(j) thereof, the deceased's one half share ("the deceased's share") of each of the properties located at -

(a) 100 Buchan Street, Cairns in the State of Queensland

(b) 125 Hartley Street, Cairns in the State of Queensland

(d) 23 Bollard Street, Cairns in the State of Queensland

(i) As to one third of the deceased's share to Louis Underwood and

(ii) As to two thirds of the deceased's share to Glen Underwood.

2. It is declared that upon the true construction of the last will of the late Peter Charles Underwood executed 17 October 2003 that pursuant to Clause 3(k) thereof the deceased's one third interest in the business described as "Total Exhibition Rentals" ("the deceased's interest") is to pass

(a) As to one half of the deceased's interest, to Louis Underwood, and

(b) As to one half of the deceased's interest, to Glen Underwood.

3. It is declared that upon the true construction of the last will of the late Peter Charles Underwood executed 17 October 2003 that pursuant to Clause 3(n) thereof the deceased's one third interest in the business known as "Underwood Party Hire" ("the deceased's business interest") is to pass

(a) As to one half of the deceased's business interest to Glen Underwood; and

(b) As to one half of the deceased's business interest to a company to be incorporated by the trustees and executors in accordance with Clause 3(n)(ii) of the said will.

4. The costs of and incidental to the application of each party shall be assessed on an indemnity basis and paid from the residuary estate.

[1] Affidavit of Roy Payne sworn 26.02.07 paras 14-25
[2] Ex "AD-1" to affidavit of Alison Delaney sworn 26 February 2007
[3] [1873] LR 8 Ex 160 at p 162

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