WILLS AND ESTATES - Construction of wills - Construction and effect of testamentary disposition - Entitlement of beneficiary - Discretionary testamentary trusts - Supreme Court (General Civil Procedure) Rules 2005, O 54.02 - Fell v Fell

2 The deceased was survived by his two adult sons: the plaintiff and Robert Peter De Bruyn ('Robert'). The will provides that the deceased's residuary estate is to be divided into two equal parts. One part is bequeathed to the plaintiff absolutely and the remaining part is to be held upon the trusts established by clause 8 ('the clause 8 trusts') which provide for the benefit of Robert on a discretionary basis during his lifetime.

3 Robert has a history of paranoid schizophrenia. In 1988 he killed his mother whilst suffering from delusions and hallucinations. He now resides at Thomas Embling Hospital. Since 7 December 1989 he has received a disability support pension.

4 On 4 August 2015, the Administrative Appeals Tribunal (Social Services and Child Support Division) ('the AAT') determined that Robert would be attributed with 100 per cent of the assets and income of the clause 8 trusts. As a result of this decision, Robert's disability support pension was cancelled by the Department of Human Services. Robert has appealed the decision and the appeal will be heard in 2016.

5 In this proceeding, the plaintiff seeks the determination of five questions concerning the construction of the clause 8 trusts.

8(a) I GIVE DEVISE AND BEQUEATH the remaining half share of my residuary estate upon trust to pay or apply in each year or income as my Trustee may in his absolute discretion think fit such part or parts of the income thereof to or for the benefit of my son ROBERT PETER DE BRUYN during his life time and I DIRECT my Trustee to hold the share (both capital and income) for such child or children (if any) of my said son ROBERT PETER DE BRUYN as are living at the date of his death and, if more than one, equally between them AND FAILING a child or children of my said son ROBERT PETER DE BRUYN surviving me then to my said son GARY MICHAEL DE BRUYN.

8(b) If my Trustee decides that it is in the best interests of my said son ROBERT PETER DE BRUYN to do so, then I EMPOWER my Trustee in his absolute discretion from time to time and at any time out of monies held on trust pursuant to this Clause or the income therefrom to purchase or otherwise acquire any freehold property, or interest in freehold property, or any share or other interest conferring right of residence (hereinafter referred to as "the Residence") and to permit my said son ROBERT PETER DE BRUYN to use and occupy the Residence rent free during his life time or until he ceases to reside permanently in the Residence, when the Residence shall be sold, my Trustee while my said son ROBERT PETER DE BRUYN resides in the Residence paying all rates, taxes and other assessments charge on or payable in respect of the Residence and keeping the Residence insured on such terms as my Trustee may require and in a proper state of repair.

7 At the hearing of the application, clarification was required by the Court as to whether this application was related to Robert's appeal against the cancellation of his disability support pension as a result of the decision by the AAT.

8 By letter dated 2 December 2015, the solicitors for the plaintiff informed the Court that the appeal raises a number of issues under the Social Security Act 1991 (Cth). They include the application of the principles in the Social Security (Attributable Stakeholders and Attribution Percentages) Principals 2000[1] and whether the Secretary of the Department of Social Services has complied with those decision making principles when determining whether Robert is an attributable stakeholder of the clause 8 trusts and whether the attribution percentage is 100 per cent or less.

9 In determining the issues in dispute in the appeal, the plaintiff's solicitors consider that questions of the construction of the clause 8 trusts may arise, in particular, their legal structure and administrative arrangements. The solicitors also consider that clarification is required of the beneficiaries covered by the clause 8 trusts for the purpose of their general administration and may be relevant to the appeal. The solicitors are unable to state whether the decision in this proceeding would be relied on in any way in the appeal but if it were, it is likely to be limited to the question of how many beneficiaries are covered by the clause 8 trusts.

10 Specifically, the plaintiff seeks the determination of following five questions:

In the events that have happened and on the true construction of the deceased's will, do the beneficiaries of the testamentary trust established at paragraph 8(a) of the will include:

(a) any children of Robert that survived the deceased and who are also alive at the date of Robert's death; or

(b) any children of Robert that were not alive at the date of the deceased's death, or born within 30 days of the deceased's death, but are alive at the date of Robert's death?

In the events that have happened, and on the true construction of the will, should:

(a) the word 'or' in the third line of sub-paragraph 8(a) read 'of'; or

(b) the word 'or' in the third line of sub-paragraph 8(a) be deleted; or

(c) the word 'capital' be necessarily implied before the word 'or' be necessarily implied before the word 'or' in the third line of sub-paragraph 8(a)?

In the events that have happened, and on the true construction of the will, does clause 8(a) of the will give Robert a:

share in the capital or income of the testamentary trust established by paragraph 8 of the will?

In the events that have happened, and on the true construction of the will does clause 8(b) of the will give Robert a:

share in the capital or income of the testamentary trust established by clause 8 of the will?

In the events that have happened, and on the true construction of the will, does Robert have a:

share in the capital or income of the estate which authorises the plaintiff pursuant to clause 11 of the will to apply capital or income for Robert's maintenance, education, benefit or advancement in life?

11 At common law, the task of a court of construction is to discover the testator's intention by examination of the words used in the will, having regard to the will construed as a whole in light of any admissible extrinsic evidence.

12 A detailed and succinct summary of the ten principles relating to the construction of wills is set out by Isaacs J in Fell v Fell, principles that his Honour described as 'incontestable'.[2]

13 Prima facie, the written words in the will must be given their ordinary meaning, with the Court making a determination of the issue by reference to the words used by the testator in the will, having regard to any established rules of construction and construing a 'will as trained legal minds would do'.[3] As articulated in the second principle of Issacs J in Fell v Fell:

The instrument ... must receive a construction according to the plain meaning of the words and sentences therein contained. But ... you must look at the whole instrument, and, inasmuch as there may be inaccuracy and inconsistency you must, if you can, ascertain what is the meaning of the instrument taken as a whole in order to give effect, if it be possible to do so, to the intention of the framer of it.[4]

14 If, in the context of the will read as a whole, and of the surrounding circumstances, the ordinary meaning of the words in the will do not make sense, extrinsic evidence is admissible in a court of construction under the 'armchair principle'. [5] This principle allows the court to place itself in the position of the testator at the time of executing the will and take into account all of the circumstances actually known to the testator when the will was made and is known as 'the armchair rule'. In the opening words of Lord Romer's judgment in Perrin v Morgan:

To understand the language employed the Court is entitled, to use the familiar expression, to sit in the testator's armchair.[6]

15 The general rule is that a testator's declarations as to his or her intentions and the meanings of words used in the testamentary document are inadmissible as direct evidence of testamentary intentions. This means that in most circumstances evidence of instructions of a testator to his or her solicitor would be inadmissible in construing the meaning of a will.

16 The circumstances in which extrinsic evidence may be used and the purposes for which it may be used in interpreting a will are also governed by statute and evidence of the testator's intention is admissible in certain circumstances. In Victoria, s 22A of the Wills Act 1958 governs the admissibility of extrinsic evidence in relation to wills made between 1 April 1959 and 19 July 1998.[7] The legislation does not oust the armchair principle but supplements it.

17 The Court's role is not to give a more rational meaning to the will but merely to determine the intention as stated, or interpret what has been expressed in the will. In interpreting words in the context of the will as a whole, the Court may ignore, change or read in words by necessary implication. This was clearly expressed in Towns v Wentworth:

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 may 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 where 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. [8]

18 It was emphasised in Fell v Fell that the implication must be necessary in the strict sense:

You have no right to fancy or to imply, unless there be something within the four corners of the will which is not only consistent with the implication you have made, but which could hardly stand, if at all, in the will, without that implication being made. That is what is called necessary implication, and legitimate implication. [9]

19 This is particularly the case where words are not merely to be ignored or changed, but to be read in. In Re Smith[10] it was considered that to do so it must be clear that there has been an omission, and the court must be reasonably certain as to what word or words were omitted.

20 This was put in even stronger terms in Fell v Fell: [11]

[W]hen the will is in itself incapable of bearing any meaning unless some words are supplied, so that the only choice is between an intestacy and supplying some words: but even there, as in every case, the Court can only supply words if it sees on the face of the will itself clearly and precisely what are the omitted words, which may then be supplied upon what is called a necessary implication from the terms of the will, and in order to prevent an intestacy.

21 That is, if it can be shown that a word has been omitted or inserted and it can be demonstrated what addition or what rejection by construction would fulfil the intention of the document, the addition or rejection by construction can be made by the Court; that is, the 'necessary implication'.[12]

22 Clause 8(a) provides for the one half share of the estate to be held on trust during the lifetime of Robert and then the trustee is directed:

... to hold the share (both capital and income) for such child or children (if any) of my said son ROBERT PETER DE BRUYN as are living at the date of his death and, if more than one, equally between them AND FAILING a child or children of my said son ROBERT PETER DE BRUYN surviving me then to my said son GARY MICHAEL DE BRUYN.

23 As a general rule, a gift to a class after a life interest includes all persons within the description of the class who were alive at the time of the testator's death or who had come into being during the lifetime of the life tenant.[13] If the gift to the class after the life interest is subject to a restriction, then the general rule does not apply.[14]

24 Clause 8(a) is subject to a restriction as it requires that any potential grandchildren of the deceased within that class must survive both the deceased and Robert. The deceased applied the same requirement of survival of the deceased in clause 9 of the will. This clause sets out what is to occur in the event that Robert predeceased the deceased and there being no child or children of Robert surviving the deceased. In that event, the remaining half share referred to in clause 8 is to pass to the plaintiff.

25 Thus, the class of grandchildren includes only grandchildren in existence at the date of the deceased's death and does not include any grandchildren that may be subsequently born during Robert's lifetime.

26 There are, therefore, no grandchildren to be taken into account as there are no beneficiaries that are entitled under this clause. This is because even if Robert were to have children upon his release from Thomas Embling Hospital, they are not grandchildren who survived the deceased. Clause 8(a) provides that in that event, the remaining half share of the estate referred to in clause 8 is to pass to the plaintiff. He is the only other potential beneficiary under clause 8(a).

27 In my view, clause 8(a) means that there are no grandchildren to be taken into account as beneficiaries. This means that upon Robert's death, the plaintiff is the only other potential beneficiary of the remaining half share referred to in clause 8.

28 In respect of the second question, the relevant part of clause 8(a) of the will to consider is as follows:

I GIVE DEVISE AND BEQUEATH the remaining half share of my residuary estate upon trust to pay or apply in each year or income as my Trustee may in his absolute discretion think fit such part or parts of the income thereof ...[15]

29 On a literal reading, the inclusion of the word 'or' before 'income' does not make sense.[16] The plaintiff submits that either the word 'or' should be ignored, the word 'or' should be read as 'of' or the word 'capital' be read before the word 'or' by necessary implication from reading the will as a whole.

30 The Court was informed that the notes of the solicitor who prepared the will were destroyed and the solicitor has no independent memory of this particular issue. This means that there is no evidence upon which an application for rectification of the will could be made.

31 Clause 8(a) refers to the trustee in his absolute discretion being able to pay or apply 'such part or parts of the income' to or for the benefit of Robert during his lifetime. There is no reference to the payment any capital to Robert in the will. Clause 8(b) makes clear that Robert does not have an entitlement to any capital from the clause 8 trusts. Clause 8(b) allows the trustee to access capital to purchase a residence for Robert's use and occupation rent free during his lifetime. As such, Robert does not have a vested, contingent or presumptive share in the capital of the estate because he is only given a right to reside in the property and nothing more.

32 Clause 11(b) gives the trustee certain powers to apply income and capital to any beneficiary as follows:

11. IN addition to all other powers conferred upon a Trustee by law I empower my Trustee to exercise all or any of the following powers:

(a) ...

(b) to apply the whole or part or parts of the income and/or capital of the vested contingent or presumptive share of any beneficiary of this my Will for or towards his or her maintenance, education, benefit or advancement in life.

33 In respect of the income of the estate, clause 11(b) allows the trustee to apply the whole or part of the income of the vested contingent or presumptive share of any beneficiary for the purposes of his or her maintenance, education, benefit or advancement of life. Robert does not have a vested contingent or presumptive share in the estate and clause 11(b) does not authorise income to be applied for his benefit.

34 In respect of the capital of the estate, beyond the power granted by clause 8(b) to access the capital as described, clause 11(b) does not authorise capital to be applied for Robert's benefit.

35 In my view, the proper intention of clause 8(a) is that it refers to income only. Clause 8(b) makes specific reference to the use of capital in a limited sense, that is, to purchase a property for Robert's use without any capital vesting in him. If clause 8(a) included access to both capital and income, there would be no need to include clause 8(b) in the will.

36 Subject to the exercise of the trustee's absolute discretion as provided in clause 8, any benefits that Robert may receive are limited to income and the use of a residence. The will does not provide for Robert to have access to the capital of the estate.

37 In my view, the relevant part of clause 8(a) should be read and construed as the word 'of' so that the intention of the clause will be fulfilled.

38 Robert has a right to be considered under clause 8(a) for the purposes of a distribution of income from the estate but he cannot require or demand of the trustee that the income under clause 8(a) be paid to him. To do so would be inconsistent with the nature of the discretion vested in the trustee. The trustee has the sole and absolute discretion to exercise the power to distribute income to Robert and but he has no obligation to distribute it to him.

39 Under clause 8(b), Robert merely has the use of any property during his lifetime if the trustee exercises his discretion to purchase a property for his occupation.

40 Similarly, clause 11(b) does authorise capital to be applied for Robert's benefit beyond that referred to in clause 8(b). Clause 11(b) is meaningful to the interests of other beneficiaries in the capital of the clause 8 trusts.

41 Discretionary beneficiaries do not have a legal or equitable interest in trust property. This does not mean necessarily that discretionary beneficiaries lack rights; it is simply that their rights are not vested or proprietary in nature. A discretionary beneficiary receives a vested interest only when, and to the extent, that the trustee in exercising the discretion and distributes income or capital to her or him.[17]

42 Accordingly, under clauses 8(a) and (b) and 11(b) of the will, Robert does not have a vested, contingent or presumptive share in the capital or income of the estate.

43 The questions in the plaintiff's originating motion are answered as follows:

The first question: In the events that have happened and on the true construction of the deceased's will, do the beneficiaries of the testamentary trust established at paragraph 8(a) of the will include:

(a) any children of Robert that survived the deceased and who are also alive at the date of Robert's death; or

(b) any children of Robert that were not alive at the date of the deceased's death, or born within 30 days of the deceased's death, but are alive at the date of Robert's death?

The second question: In the events that have happened, and on the true construction of the will, should:

(a) the word 'or' in the third line of sub-paragraph 8(a) read 'of'; or

(b) the word 'or' in the third line of sub-paragraph 8(a) be deleted; or

(c) the word 'capital' be necessarily implied before the word 'or' be necessarily implied before the word 'or' in the third line of sub-paragraph 8(a)?

The third question: In the events that have happened, and on the true construction of the will, does clause 8(a) of the will give Robert a:

share in the capital or income of the testamentary trust established by paragraph 8 of the will?

The fourth question: In the events that have happened, and on the true construction of the will does clause 8(b) of the will give Robert a:

share in the capital or income of the testamentary trust established by clause 8 of the will?

The fifth question: In the events that have happened, and on the true construction of the will, does Robert have a:

share in the capital or income of the estate which authorises the plaintiff pursuant to clause 11 of the will to apply capital or income for Robert's maintenance, education, benefit or advancement in life?

[1] Explanatory Statement, Social Security Act 1991 (Cth). Formulated by the Secretary pursuant to s 1290E of the Social Security Act 1991 (Cth).

[2] [1922] HCA 55; (1922) 31 CLR 268, 273-6.

[3] Ibid 273, quoting Ralph v Carrick (1879) 11 Ch D 873, 878 (Cotton LJ).

[5] Boyes v Cook (1880) 14 Ch D 53, 56 (James LJ).

[6] [1943] AC 399, 420.

[7] Where a will is made on or after 20 July 1998, s 36 of the Wills Act 1997 is the applicable provision.

[8] [1858] EngR 371; (1858) 11 Moo. P.C. 526, 543

[9] Fell v Fell [1922] HCA 55; (1922) 31 CLR 268, 274, quoting Langston v Langston [1834] EngR 190; (1834) 2 Cl & F 194, 236-237 (Lord Brougham).

[10] [1948] Ch 49; [1947] 2 All ER 708; cited with approval in Butlin v Butlin [1966] HCA 4; (1966) 113 CLR 353, 357 (Barwick CJ).

[11] Fell v Fell [1922] HCA 55; (1922) 31 CLR 268, 275, quoting Hope v Potter [1857] EngR 377; (1857) 3 K&J 206, 209 (Page Wood VC).

[12] Ibid 274, quoting Langston v Langston [1834] EngR 190; (1834) 2 CL & F 194, 236-7 (Lord Brougham LC).

[13] David M Haines QC, Construction of Wills in Australia (Lexis Nexis Butterworths, 2007) 309 [29.19], referring to Adams v Perpetual Trustee Co (Ltd) [1964] HCA 31; (1964) 114 CLR 527, 531 (Kitto J), there citing with approval Hickling v Fair [1899] AC 15, 35 (Lord Davey, part of the majority of the House of Lords).

[14] Adams v Perpetual Trustee Co (Ltd) [1964] HCA 31; (1964) 114 CLR 527, 530, 533 (Kitto J).

[16] The AAT decision comes to the same decision on this issue: paragraph 2, 19. The AAT concludes that there 'is an evident drafting error in this clause, but it does appear to refer to distributions of income only.'

[17] G E Dal Pont, Equity and Trusts in Australia (Thomson Reuters, 5th ed, 2007) 607 [20.130].