Dawson v Howard [1999] NSWSC 729 (20 July 1999)

Last Updated: 26 July 1999

NEW SOUTH WALES SUPREME COURT

CITATION: Dawson v Howard [1999] NSWSC 729

CURRENT JURISDICTION: Equity Division

FILE NUMBER(S): 1965/99

HEARING DATE{S): 07/07/99

JUDGMENT DATE: 20/07/1999

PARTIES:

Bryant Edward Gerrard Dawson (P)

Joyce Eleanor Howard (D1)

Peter Carey Prior (D2)

JUDGMENT OF: Young J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

C Hodgson (P)

F P Carnovale (D)

SOLICITORS:

Mark Fraser (P)

Toomey Pegg Drevikovsky (D)

CATCHWORDS:

Succession [212]- Condition of gift- Income to be used for maintenance support and benefit of disabled son- Whether son entitled to whole income- Extent of trustees' discretion to allocate income. Succession [234]- Will- Construction- Absolute gift- When cut down- Gift to disabled son for maintenance support and benefit

ACTS CITED:

DECISION:

See para 37

JUDGMENT:

THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

YOUNG, J

TUESDAY 20 JULY 1999

1965/99 - DAWSON V HOWARD & ANOR

JUDGMENT

1 HIS HONOUR : Edward Dawson died on 29 May 1979. Probate of his last will dated 20 March 1978 was granted to the defendants on 23 August 1979. The testator died a widower with one son, the plaintiff. The testator's two wives, the plaintiff's mother and stepmother both predeceased the testator.

2 The plaintiff at the time of his father's death was aged about 53. He is currently under the protection of a guardianship order because the Guardianship Tribunal considered he was incapable of managing his property or affairs. Medical evidence shows that he has what Dr Tedeschi described as a mild development disability. He has severe health problems, but Dr Tedeschi said that he actually appears less able than he really is. She says in her report of 18 February 1998, "He had almost no formal education (one day, he reckons) and cannot read or write effectively. However, he is certainly at present, an amiable gentleman, who can follow the sport on TV, discuss his health sensibly and understands his medical problems to a degree. He has formed a stable and loving relationship with his wife Barbara who is also mildly intellectually disabled. Mr Dawson enjoys drawing and colouring in, both of which he does extremely well. He can write his name. I believe he could have learnt a great deal more if given more opportunities."

3 The doctor's report then went on to say, "Mr Dawson is likely to have numerous medical appointments over the next few years. He will need a good wheelchair. His medications are expensive. His home could do with some decent furniture and he would benefit from holidays away. Mrs Dawson has just been diagnosed with breast cancer and may very well need a mastectomy and subsequent rehabilitation. Mr Dawson could certainly do with some help (cooking, cleaning etc) in this period. The quality of his nutrition is poor and his clothes are only just adequate.

"Mr Dawson is a happy man, despite his constant severe back pain and breathlessness. However, in the few years left to him, his standard of living could certainly stand improvement in the above ways, if there were adequate funding ...".

4 Dr Nicola Duncan who took over Dr Tedeschi's role, made similar observations.

5 The plaintiff was the testator's only son. By his will, the testator, after making provision for various legacies, gave the rest and residue of his estate to his trustees on trusts. The primary trust was as follows:

"(a) To pay or apply the net income arising therefrom in or towards the maintenance support and benefit of said son BRYANT EDWARD GERRARD DAWSON during his lifetime with full and complete power to my Trustees if at any time my trustees consider that the income of my residuary estate is insufficient for the proper maintenance support and benefit of my said son to have recourse from time to time to the capital of my residuary estate to make the said income up to such a sum as shall in the opinion of my Trustees be proper and sufficient and adequate for the maintenance support and benefit of my said son BRYANT EDWARD GERRARD DAWSON during his lifetime AND I DIRECT that my said Trustees shall during the lifetime of the said BRYANT EDWARD GERRARD DAWSON pay to his guardian ESTELLE MURIEL CLANCY such amount per week as my said Trustees shall deem in their sole discretion to be sufficient and adequate for the proper maintenance support and benefit of my said son whilst he is in the care and control of the said ESTELLE MURIEL CLANCY."

6 Clause 4(b) of the will then provided in summary that after the plaintiff's death the residue was to be divided into two equal parts, one for such of the grandchildren of Joyce Howard living at the death of the plaintiff who attained 18, and the second part under certain circumstances would pass to Estelle Muriel Clancy or in other circumstances to such of the great grandchildren of the testator's sisters and brothers as should be living at the plaintiff's death and who attained 18.

7 The will then provided in clause 5 that there was a power to invest any funds requiring investment in certain securities. However, there was no power to accumulate income in the will, there was no alternative provision or gift over of any surplus income to any person.

8 The trustees were Mrs Howard who was the testator's niece and who is the mother-in-law of the other trustee, Mr Peter Prior, solicitor. It would seem that Mr Prior had known the testator personally for very many years, and had prepared the will. Mr Prior and his wife have five children. Mrs Howard has another four grandchildren whose father is her son Ian. Accordingly, the children or grandchildren of the trustees will, in due course, inherit the capital of the estate or at least 50% of it.

9 What has happened since the death of the deceased is well set out in the affidavit of Mr Prior. He says that shortly after the plaintiff commenced to live with Mrs Clancy, there was a discussion between Mrs Clancy, his mother-in-law and himself about the plaintiff's needs and an agreement was reached as to a weekly amount which would be paid to Mrs Clancy to meet those needs. After the plaintiff stopped living with Mrs Clancy and went to live at Bidwell House, there was a subsequent agreement with the Department of Community Services in which a regular payment was made on a weekly basis to the Department or to a controlled account of the plaintiff's which was being supervised by the Department. Additionally, when further needs arose based on discussions with the departmental officers and the trustees, special payments would be made.

10 Mr Prior also says, "Mrs Howard and I have never had any discussion concerning the allocation or application of the entire net income of the estate for the benefit of Bryant. ... I have never turned my mind to the possibility of paying, applying or allocating the entire net income of the estate for any particular year to, or for the benefit of, Bryant. My approach has always been to try and determine what Bryant's needs are and to pay or apply for his benefit an amount which, after discussion with Mrs Howard, I considered was appropriate to meet those needs."

11 The evidence, particularly the cross examination, showed that in actual fact, as is quite understandable, Mrs Howard virtually left all of the administration of the estate to Mr Prior. The evidence also shows that in practice Mr Prior left everything to his accountant, Mr Farr, and to his (Mr Prior's) secretary.

12 In about 1988, Mr Prior realised that income tax returns for the estate had not been filed. His evidence is that he asked his accountant, Mr Farr, to remedy the breach. Mr Farr did so. According to Mr Prior, Mr Prior just signed what Mr Farr had prepared and submitted it to the Taxation Department.

13 The taxation returns were prepared on the basis that the whole of the income for the year was the income of the plaintiff and that what was not expended was treated as a loan back to the estate. The estate then lent out the capital and accumulated income on first mortgage. The fund has grown from $65,000 to $220,000. The way in which the accounts have been kept for taxation purposes and the income tax returns that have been submitted show that the capital has remained at $65,000.

14 The trustees gave evidence that in fact there was no attention given to this matter and that the accountant, Mr Farr, merely treated the accounts in this way without instructions. Mr Hodgson, for the plaintiff, says that actually the only proper explanation of the accounts is that the trustees have exercised their discretion and attributed the whole of the income to the plaintiff and that the accumulated income should now be paid over to the plaintiff. Alternatively he puts that the income tax returns must be taken as showing the true position with the same result flowing.

15 Mr Carnovale for the defendants says that when one looks at the evidence in the case there never was any determination made by the trustees at all. He says that on the proper construction of the will what was to happen to the fund was that it was to be used as far as possible in the maintenance of the life tenant but anything that was not used was to accumulate as capital.

16 There are some problems with the interpretation which Mr Carnovale urges. One problem is that there is no mention in the will of any clause empowering the trustees to accumulate the income. The second is that the Thellusson Act would in any event have restricted accumulations, certainly if they were to take effect more than 21 years after the date of the deceased's death.

17 Mr Carnovale says that one must sit in the testator's armchair when viewing his will. This is quite an orthodox approach. However Mr Carnovale says that when one is sitting in the testator's armchair one can see that here provision is being made for a son who is intellectually disabled, who will probably never marry and who is likely to have all his needs met out of income. Why would any such testator want the surplus income either to be paid to the son which he would not know what to do with or to be accumulated to the son and so pass to the Crown as bona vacantia?

18 Mr Hodgson says first that that submission is not a legitimate application of the armchair rule, but that even if it was, there is no material to suggest that the testator ever thought as to whether his son would marry or not, and in fact the son has married. Furthermore, the submission does not answer the fact that the son has, on the material, more needs than the trustees have met and that it was not legitimate for them merely to come to an agreement with the carer for the time being as to how much was needed for pocket money and thereafter to retain the balance when the son had so many needs, as indicated by the doctors' reports.

19 Whilst the armchair approach is, as I have said, an orthodox one, I do agree with Mr Hodgson that Mr Carnovale is taking the approach too far. There is nothing to show one way or the other that a person in the testator's armchair would have directed attention to what was happening to any surplus and whether the odds favoured the surplus becoming bona vacantia.

20 The principal problem is that the will does not contain any clause permitting income not used to be accumulated let alone indicating where such accumulation is to go.

21 One reading of the will is that the trustees are to spend the whole of the income for the plaintiff's benefit - that is the minimum they are to provide for him, and then they are to cast their minds as to whether that minimum is sufficient.

22 There is a lot to be said for this construction. The words "in and towards" reinforce this.

23 Next there is a general rule that when one sees a gift of income without any gift over to a particular named person for a particular purpose, that ordinarily the purpose is a mere indication of motive and does not cut down the out and out gift. Theobald on Wills 14th ed (Stevens & Sons, London, 1982) p 513, quoting Re Osoba [1978] EWCA Civ 3; [1979] 1 WLR 247, 257; [1978] EWCA Civ 3; [1979] 2 All ER 393, 402, says that generally speaking if the whole of a fund whether capital or income is given to a beneficiary, even though the purpose of the gift is stated, it is taken to be a gift of the whole fund.

24 This sort of case is in contradistinction to the case where the gift is the whole fund or so much as is necessary to fulfil the purpose as was the case in Re Sanderson's Trust [1857] EngR 731; (1857) 3 K & J 497; 69 ER 1206 (see K & J at 507; ER 1210).

25 There are many examples of cases which fall into the first category. Most of the cases are listed by McLelland J in Sacks v Gridiger (1991) 22 NSWLR 502, 508. Probably the best example is Re Bowes [1896] 1 Ch 507, where a bequest of money to be laid out in planting trees on an estate was held to be a bequest to the persons entitled to the land which was designated for the planting of the trees.

26 Sometimes the gift will be construed as being conditional upon the beneficiary using the moneys for the stipulated purpose. The classic example of this is Perpetual Trustee Co (Ltd) v Hindmarsh [1948] NSWStRp 36; (1948) 48 SR (NSW) 454. In that case the testatrix gave money to her grand-nephew for his maintenance as a boarder at Riverview. The boy went to St Aloysius College and Sugerman J held that attending Riverview was a condition and accordingly the child did not take the money.

27 As a further indication that the plaintiff was to take the whole of the income it is to be noted that the words used by the testator are "maintenance support and benefit". In such a context the word "benefit" is usually construed extremely widely; see Re Peel [1936] Ch 161.

28 Where, however, the beneficiary is suffering some disability, the court is more likely to uphold a contention that the beneficiary is not absolutely entitled, but is entitled to have the trustees exercise their discretion as to how the beneficiary will be paid the money. One case of this type which was cited in argument is Bagots Executor Trustee Co Ltd v Minda Home Inc (1994) 62 SASR 596. In that case the will essentially provided that the fund be held on trust so that the income would be used for some competent humane and conscientious person with nursing training to care for the son of the testator rather than have him institutionalised. Millhouse J at p 602 set out the general principle that an absolute gift followed by directions as to the use of the gift will usually stand as an absolute gift. However he held that the circumstances of that particular case meant that there was virtually a discretionary trust in favour of the son. He said at p 603, "This is not the case of gifts with a superadded purpose which may be disregarded and the gifts accordingly are absolute."

29 I consider that the flavour of the present will is much the same. The testator did not want the plaintiff to receive the money in cash but wished to make sure that he was well provided for.

30 It seems to me that on the proper construction of the will, the testator intended that the plaintiff should only receive the income in a way which would be for his benefit.

31 However, there is no warrant for the trustees deciding that the plaintiff could do with less than the whole of the income (though they could have decided that the whole of the income was not enough). There is no warrant at all in accumulating the surplus to be capital for the benefit of the remaindermen. Putting out of one's head altogether that the remaindermen were the children or grandchildren of the trustees, there is just no warrant for doing it. There is no accumulation clause and nothing in the will to suggest that the whole of the income was not to be used for the plaintiff.

32 Indeed it may well be that any surplus does not go to the remaindermen, but is undisposed of property which may go to the next of kin; see Berry v Green [1938] AC 575, 582.

33 In any event, the evidence in this case shows that indeed, the plaintiff has needs which have not yet been met.

34 In my view the trustees have not yet exercised their discretion as to how the income should be devoted. I do not consider that the exercise is as easy as Mr Hodgson suggests, and that is to just treat the income tax returns as being correct and consider that the money is absolutely that of the plaintiff with power for him to do anything with it that he wishes. The income tax returns are correct in that the money must be taken to be beneficially belonging to the plaintiff but only in the sense that it is to be wholly used for his benefit. The trustees have not exercised their discretion, see Turner v Turner [1984] Ch 100, and they must now do so.

35 This is not a case where the trustees have a discretion as to whether they will apply the fund for the plaintiff, rather they have merely a limited discretion as to the time and manner that the money shall be devoted for that purpose; see Re Weaver (1882) 21 Ch D 615 and Underhill and Hayton Law of Trusts and Trustees 15th ed (Butterworths, London, 1995) p 671.

36 Mr Carnovale puts that this goes too far and that all that is really conferred is a trust power. However, to my mind there is a straight trust giving the whole of the income (supplemented by capital if need be) to the trustees to be used for the benefit of the plaintiff.

37 Accordingly, I can make declaration 1(i) in the summons, but I do not consider that I should make the remaining orders. What should now happen is that those who have the interests of the plaintiff at heart must formulate a scheme for the application of the accumulated income and put that scheme to the trustees. If the trustees consider that the scheme is appropriate, they may pay the income in accordance with it. If the trustees do not consider that that scheme is sufficient or appropriate and agreement cannot be reached, then the court will need to decide.

38 As I am proceeding on long leave, I will refer all remaining matters in the proceedings including questions of costs to a Master.

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LAST UPDATED: 21/07/1999