Estate Reid; Roberts v Moses and Palmer

This judgment determines disputed questions of construction relating to testamentary instruments of Peter Malcolm Reid (“the deceased”) in proceedings for family provision relief against his estate instituted, under Chapter 3 of the Succession Act 2006 NSW, by Peta Roberts (the plaintiff), a niece of the deceased by marriage.

The deceased died at home, at Point Piper, on 29 August 2015, aged 100 years, leaving:

The deceased married late in life. His wife predeceased him. She died in 1998. He had no children of his own. However, by his wife, he acquired a stepson, Rupert James Moses (the first defendant). “Jim” has two children, Andrew (the third defendant) and Sarah (the fourth defendant).

The deceased was a successful businessman, an investor; a man, by nature, a patrician who tended to speak in commands, accustomed to deference. He was attracted to women; including the plaintiff (a single mother), to whom he was during his lifetime generous with financial assistance.

In the 25 years or so before his death, he increasingly relied upon Philip Stanley Palmer (the second defendant), an accountant by training, to manage his affairs. The second defendant was, and remains, a discreet, loyal servant of the deceased, given to quiet implementation of decisions made by the deceased. He was the deceased’s office manager, his second in command. The deceased’s commitment to him extended to naming his son, Christopher, as a substituted beneficiary (and, on one view, a substituted executor) if the second defendant happened to predecease him.

Much of the deceased’s business was conducted through companies which, from about 1997, were wholly owned and controlled by him. Vanreid Industries Pty Ltd (the fifth defendant) owned and controlled Vanreid Enterprises Pty Ltd (the sixth defendant), and was in its turn owned and controlled by the deceased.

On 1 December 2017, without the objection of any person interested in the estate of the deceased (either as a beneficiary or as a claimant for family provision relief), the Court ordered that a grant of probate, in solemn form, be made to the first and second defendants in respect of the following testamentary instruments:

Each of the “statement of wishes” was admitted to probate, effectively, as an informal codicil to the will dated 25 January 2000, pursuant to section 8 of the Succession Act.

Other candidates for admission to probate were ultimately discarded as neither supported by any interested person nor demanding admission to probate.

Each of the instruments admitted to probate was a lay document. The deceased was the sole author of each one.

The deceased dictated each document to the second defendant, who engrossed it and presented it to him for approval and execution. It was not the practice of the second defendant to correct, or cavil with, the deceased’s choice of words. He acted as an amanuensis, not as an adviser. He was close to the deceased, as a second-in-command military man might be to his commander, but their relationship was “business” rather than “personal”. He acted as the deceased’s office manager, not as his confidant. He did not presume to question the deceased’s instructions for the preparation of testamentary documents, even those which favoured him. The deceased kept those documents under his close scrutiny in a “will file” even when, after his retirement, day-to-day custody of the file was entrusted to the second defendant.

The will dated 25 January 2000 was based on an earlier will, executed before the death of the deceased’s wife, prepared by a solicitor on the deceased’s instructions. Confident of his own abilities, and anxious not to pay legal fees for the preparation of another will or any codicil, the deceased took it upon himself to prepare the will dated 25 January 2000, and subsequent instruments, without legal assistance.

Commencing with an instrument dated 26 June 2009 not admitted to probate, the deceased took to the preparation of testamentary documents in the form of a “statement of wishes”. The deceased told the second defendant that an unnamed solicitor-friend had suggested this practice to him as a means of effecting an informal expression of his testamentary intention.

The deceased became an enthusiastic will-maker; but his strategy for minimising legal fees miscarried at the expense of his deceased estate. His poorly drafted documentation has served as a beacon to controversy. And, with that, engagement of not a few litigation lawyers.

The first and second defendants were named as the deceased’s executors in the will dated 25 January 2000.

A grant of probate was issued to them, as ordered, on 12 February 2018.

They had a Herculean task in marshalling the deceased’s testamentary documentation, beneficiaries and family provision claimants, during the course of which a mediation (conducted by Keith Mason QC on 28 October 2016) was attended by about 40 participants.

In the event, with but one exception all claims against the deceased’s estate have been settled by the first and second defendants.

The exception is located in the present proceedings, commenced by a summons filed on 6 October 2015.

The plaintiff (Peta Roberts) is a daughter of the brother of the deceased’s wife. She is unmarried.

In substance, the plaintiff’s summons sought family provision relief. Although formal orders have yet to be made, the parties have advised the Court that the family provision claim has been settled (on terms not yet disclosed).

Before formal orders could be made on the summons the parties joined in inviting the Court to determine disputed questions of construction bearing upon the plaintiff’s entitlements under the instruments admitted to probate.

As a procedural expedient (adopted at my suggestion), the questions for determination are defined by reference to claims for relief made by the plaintiff in a notice of motion filed by her on 4 July 2017.

The testamentary provisions the subject of controversy take the following form:

These provisions give rise to the following problems:

On the very cusp of my publication of reasons for judgment on all these questions, the plaintiff and the third and fourth defendants invited deferral of judgment on the last question – that is, consideration of the nature of the gift affecting the deceased’s residence.

That invitation was based upon their achievement, in the shadow of judgment, of an “in principle” settlement of disputation between them, and a need (not likely to be satisfied in less than a fortnight) to engage the first and second defendants in further, consequential negotiations.

As an inducement to judgment on that part of the motion directly affecting herself and the third and fourth defendants (encapsulated in paragraph 9 of the motion) being deferred, counsel for the plaintiff expressly abandoned the plaintiff’s public policy objection to a limitation on her gifts referable to marriage (an objection encapsulated in paragraph 10 of the motion).

The perceived necessity for that abandonment arose from the fact that the public policy objection was taken by the plaintiff in relation to each of the gifts made to her, and the first and second defendants pressed the Court for immediate publication of reasons for judgment directed to the deceased’s gift of “dividend income” to the plaintiff.

The plaintiff having abandoned paragraph 10 of her motion, I am able, by these reasons, to give judgment on the “dividend income” gift whilst, at the same time acceding to the request of the plaintiff and the third and fourth defendants that I defer judgment on paragraph 9 of the motion in order to facilitate ongoing settlement negotiations limited to questions uniquely referable to that paragraph.

A defence raised by the defendants, to some (but not all) of the contentions advanced by the plaintiff in relation to the gift of income, is whether the plaintiff is estopped from advancing those contentions because, before the proceedings were referred to mediation I endeavoured, in case management of the proceedings, to have all parties articulate all claims on the estate of the deceased; the defendants contend that the disputed contentions were not advanced before the mediation; the first and second defendants contend that they agreed to settlement of claims on the estate of the deceased upon an assumption that the plaintiff had before mediation articulated all her claims; and, the defendants contend, the plaintiff is thereby estopped from belatedly asserting the disputed contentions.

The defendants’ estoppel defence has no practical bearing on the outcome of the parties’ contest. That is because: (a) the defence fails at a factual level insofar as, on my assessment of the second defendant’s oral evidence, the first defendant and he did not rely on any perceived pre-mediation limitation on the plaintiff’s case in making decisions about whether, and what claims against the deceased’s estate, to settle; (b) the estoppel defence is directed to formal claims by the plaintiff to have NAB and CBA shares transferred out of the ownership of the sixth defendant, claims not ultimately pressed by the plaintiff on the hearing of her motion; and (c) during the course of the hearing on the motion, the defendants disclaimed reliance upon an estoppel defence to the plaintiff’s principal claim that, having accepted the deceased’s gift of ownership of the fifth and sixth defendants “subject to” the deceased’s gift of dividend income to the plaintiff, the second defendant is, in equity, personally bound to give effect to the gift in favour of the plaintiff.

The equitable principle upon which the second defendant is said to be bound to honour the deceased’s gift of “dividend income” in favour of the plaintiff was articulated by the Court of Appeal (constituted by Handley, Sheller and Cripps JJA) in Williams v Legg (unreported, 16 March 1993), at pages 9-10, in the following terms (with emphasis added):

The second defendant did not mightily resist a finding – which, in my opinion, should be made – that, having accepted the deceased’s gift of the fifth defendant (codicil dated 31 August 2001, clause 3(B)), “subject to” the gift to the plaintiff of “income from dividends received” (codicil dated 31 August 2001, clause 1(C)), he is personally bound, in equity, to give effect to the intention of the deceased in making that gift to the plaintiff. Substantial disputation was confined to argument about: (a) the ambit of the intention of the deceased in making the gift in favour of the plaintiff; and (b) whether and, if so, to what extent the second defendant’s obligation should be enforced by consequential injunctive relief.

Consideration of the deceased’s testamentary intention requires five preliminary points to be noticed:

Insofar as the deceased’s will and codicils manifest a “scheme” for dealing with his estate, it is limited to an intention that ownership and control of the fifth and sixth defendants continue under the stewardship of the second defendant, to whom (in consultation with the first defendant as co-executor), he confided the task of management of disparate provisions for the benefit of a broad range of persons for whom the deceased sought to make provision.

Recognition of that scheme militates against the plaintiff’s case, not ultimately pressed, that the NAB and CBA shares be transferred to the first and second defendants so as to give effect to the deceased’s gift of “dividend income” to the plaintiff. In my opinion, the deceased’s testamentary intention was that the business of the fifth and sixth defendants be preserved, indefinitely, under the stewardship of the second defendant or, if the second defendant predeceased him, Christopher. He did not intend that the companies which bear his name be divested of property to give effect to his testamentary intentions. In clause 3 of his codicil dated 3 April 2014 he expressly “declared and confirmed” that “all the specific gifts & bequests of sums of money previously given in my will & Codicils be made from any surplus net income from my residuary estate & not from the sale of shares or other assets”.

The deceased’s testamentary scheme also conforms to, and is reinforced by, the objective reality that, before his death the deceased increasingly entrusted management of his affairs to the second defendant as a trusted, discreet deputy.

Recognition of the deceased’s testamentary scheme does not otherwise greatly assist resolution of disputation about the plaintiff’s entitlements to “dividend income”. The provisions governing those entitlements are essentially idiosyncratic products of a lay imagination vaguely familiar with the use of legal language.

In his evidentiary exposition of the disputed gifts in favour of the plaintiff, the second defendant deposed to conversations he said he had with the deceased contemporaneously with execution of the codicils in which they appear. Although I accept that the second defendant prepared his affidavits, and gave evidence in cross examination, with honesty of purpose and a conscientious respect for the deceased’s intentions, I place no weight on his evidence of long ago conversations. Close though his business relationship with the deceased was, he was not an intimate friend of the deceased and, when he prepared testamentary documents for the deceased, in accordance with the deceased’s dictation, he deliberately confined himself to reproduction of the dictated word. The written form of the deceased’s testamentary intentions is the safest expression of those intentions.

Clause 1(C) of the deceased’s codicil dated 31 August 2001 and (as he described it), paragraph 1(D) of his codicil dated 27 October 2003 together read as follows:

It is not necessary, in construing the gift to the plaintiff in the first limb of clause 1(C), to explore the meaning of the gift over in the second limb of the clause absent disagreement between the first and second defendants as to its operation. The reference in the second limb to a “transfer” of “the title” of shares must, in any event, be read in the context of clause 3 of the deceased’s codicil dated 3 April 2014, to which reference has been made as confirmation of the scheme underlying the deceased’s testamentary instruments as a whole. The deceased “declared and confirmed” that “all the specific gifts and bequests of money” made by him are to be made from his residuary estate and not from the sale of shares or other assets.

In the context of their review of the deceased’s income tax returns, the deceased and the second defendant were accustomed to recognising a distinction between dividend income received and an allowance of “franking credits”, a form of “statutory income” by virtue of the Income Tax Assessment Act 1997 Cth, section 207.20. However, I doubt the reliability of the second defendant’s evidence of a contemporaneous conversation with the deceased that attributes to the deceased an intention to include in the expression “income from dividends received” imputed income attributable to franking credits.

At the times the deceased executed his codicils of 31 August 2001 and 27 October 2003, and subsequently, the deceased was aware of the state of his and his companies’ ownership of shares. He knew that he held CBA shares only through the sixth defendant, not personally.

In my opinion, his reference in clause 1(C) to “my shares” was intended by him to be a reference to whatever shares were under his ownership and control at the time of his death, be they held by him personally or by the fifth or sixth defendants.

That conclusion is reinforced by the imposition, in clause 1(D) of a maximum entitlement of $500,000 per annum. There was a perceived need of such a cap because, uncapped, dividend income received via the sixth defendant (in addition to that received via the deceased personally) was likely to exceed that amount.

In making a gift referable to “my shares” in CBA, the deceased knew that the only shares ever answerable to that description were shares registered in the name of the sixth defendant, a company owned and controlled by him through his ownership and control of the fifth defendant. The gift spoke at the time of the deceased’s death; but it must be taken as having represented his settled intention, having survived a decade of subsequent codicils, each implicitly confirming the gift.

In my opinion, references in clauses 1(C) and 1(D) to “income... received” are references to dividends actually received, and do not extend to franking credits. Although, by virtue of Commonwealth legislation, franking credits might be viewed for taxation purposes as attached to dividends, the concept of franking credits does not sit comfortably with the deceased’s reference to “income… received”. The fact that he was aware of “franking credits” in a taxation context, but made no reference to them in his codicil, if at all relevant, supports a conclusion that, in gifting the plaintiff “income from dividends received”, the deceased did not confer upon her the benefit of franking credits.

In my opinion, the $500,000 per annum cap on the gift of “income from dividends received” to the plaintiff operates year-by-year commencing on the date of the deceased’s death. During each year bounded by the anniversary of the deceased’s death the plaintiff is entitled to a “maximum income” of $500,000.

In its true character, the gift to the plaintiff is an amount calculated as the equivalent of income on dividends received (as and when received) by the holder of the shares under the ownership and control of the deceased at the time of his death. That construction of clause 1(C) is consistent with construction of the clause as extending to shares not held by the deceased personally. It is also consistent with the terminology of clause 1(D), which distinguishes between “income to be received by [the plaintiff] in respect of the income from dividends” referred to in clause 1(C).

Although it is no longer necessary for me to deal with the public policy question raised by paragraph 10 of the plaintiff’s motion (that paragraph having been expressly abandoned), the nature of the question – involving, as it does, consideration of the public interest – justifies, if not demands, confirmation that, in my opinion, there is no rule of public policy that operates to void the limitation of the gift to the plaintiff in the event of her marriage: Sciacca v Ghidella, Reghenzani [2001] QSC 134 at [17]. In Gill v Gill (1921) 21 SR (NSW) 400 (a case cited with approval by Dawson J in Muschinski v Dodds (1985) 160 CLR 583 at 624-625) Harvey J upheld a personal equitable obligation of a beneficiary of a conditional testamentary gift to provide for his sister so long as she remained unmarried.

In Jones v Krawczyk [2011] NSWSC 139, conscious of Ramsay Trustees Executors and Agency Co. Ltd (1948) 77 CLR 321, White J underlined the continuing applicability of a rule of public policy protective of an existing marriage. However, in the present case, there is nothing in the deceased’s gift to the plaintiff which is aimed at inducing divorce or separation, or otherwise eroding the sanctity of an existing marriage. In those circumstances, in my opinion, there is no public policy operative so as to void the condition subsequent on the gift of income defined by reference to marriage.

There is no dispute between the parties that references in the deceased’s codicil to NAB and CBA shares should be taken as including bonus shares or other securities derived from, or bearing the character of an accretion to, NAB and CBA shares forming part of the deceased’s estate. A formal notation to that effect was made by the Court on 2 May 2018 in connection with an issue of shares consequent upon a merger of a subsidiary company with NAB in the United Kingdom. It was accepted by the defendants that a determination of disputed questions about the deceased’s NAB shares would carry with it those incidental shares.

The formal notation made by the Court was in the following terms:

In formulating the relief to be granted to the plaintiff in relation to clause 1(C) of the codicil dated 31 August 2001 and paragraph 1(D) of the codicil dated 27 October 2003, read with clause 3(B) of the codicil dated 31 August 2001 in light of the second defendant’s acceptance of the conditional gift of the deceased’s shares in the fifth defendant contained in clause 3(B), it is important to notice the nature of the case made out by the plaintiff.

The plaintiff made out her case by reference to the Court of Appeal’s observations in Williams v Legg extracted above.

Those observations contain a primary reference to the judgment of Dixon J in Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 418-419. In that judgment, his Honour distinguished four classes of gift, as appears in the following, edited extract:

The Court of Appeal’s reference to a “personal” equitable obligation makes plain its reference to the second (not the third) of Dixon J’s four types of gift. The plaintiff’s case is that, having accepted the deceased’s conditional gift, the second defendant is bound by a personal equity falling short of a charge on property.

That this is so can be confirmed by reference to the cases cited by Dawson J, in Muschinski v Dodds (1985) 160 CLR 583 at 624-625, implicitly adopted by the Court of Appeal in addition to its explicit reference to Messenger v Andrews: Gregg v Coates (1856) 23 Beav 33; 53 ER 13, Rees v Engelback (1871) LR 12 Eq 225, Gill v Gill (1921) 21 SR (NSW) 400, In re Hodge; Hodge v Griffiths [1940] Ch 260 and Countess of Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 at 418-420.

Those cases suggest (as confirmed by Dawson J’s recognition of the availability of an award of compensation or an order for specific performance as an appropriate remedy) that a personal equity arising from acceptance of a conditional gift is analogous to a contract to perform an obligation in consideration of the testamentary gift.

The relief claimed by the plaintiff goes beyond what is appropriate to the case she has made out.

The consequential relief she seeks, in addition to a declaration defining the ambit of the second defendant’s obligation, is a pair of injunctions (directed not only to the second defendant personally, but also against the first and second defendants in their capacity as the deceased’s executors, and against the fifth and sixth defendants as the holders of shares upon which dividends can be expected to be paid):

The case made out by the plaintiff looks to enforcement of the second defendant’s personal obligation rather than a remedy against the deceased’s executors or the companies to which are likely to be paid dividends which provide a measure of the deceased’s gift to the plaintiff. Whether or not the deceased’s executors should be joined in any enforcement proceedings against the second defendant personally may be a moot point: compare Rees v Engelback (1871) LR 12 Eq 225 at 238 and Gill v Gill (1921) 21 SR (NSW) 400 at 406. Whether or not they be necessary parties, the deceased’s executors (the first and second defendants in their representative capacity) are a party to these proceedings.

The defendants contend, and I agree, that the relief to which the plaintiff is presently entitled is appropriately limited to a declaration defining the ambit of the second defendant’s obligation and an order that he specifically perform that obligation. Should he refuse to carry out his obligation, or be disabled from doing so, the plaintiff might be awarded compensation as an alternative means of enforcing the obligation.

Subject to allowing the parties an opportunity to be heard as to the form of orders to be made, and generally as to costs, I propose to make orders to the following effect in partial disposition of the plaintiff’s notice of motion:

At the invitation of all parties, I adjourn the proceedings (without the making of formal orders) until 3.00pm on 13 August 2018, at which time, I anticipate, the parties will make any submissions they propose to make about the form of orders required to give effect to these reasons for judgment; orders will be made, as then appropriate, to facilitate disposal of paragraph 9 of the plaintiff’s motion and the plaintiff’s family provision claim; and any application(s) for costs orders will be entertained.