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Crawford v Phillips [2018] NZCA 208; [2018] 3 NZLR 247 (22 June 2018)

Last Updated: 4 November 2019

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IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA
CA399/2017
[2018] NZCA 208



BETWEEN

JOHN ERNEST CRAWFORD AND PHILIP SAMPSON WELLS AS EXECUTORS OF THE ESTATE OF KRUZO PHILLIPS
Appellants


AND

DORIS PHILLIPS AS EXECUTOR OF THE ESTATE OF JOHN YUKICH
Respondent

Hearing:

9 April 2018

Court:

Asher, Wylie and Thomas JJ

Counsel:

A J Steele and K R Narayanan for Appellants
D J Blaikie and T W Luders for Respondent

Judgment:

22 June 2018 at 9 am


JUDGMENT OF THE COURT

  1. The appeal is dismissed.
  2. Costs are reserved. If the parties are unable to reach agreement on costs they are to file submissions within 30 working days of the date of this judgment.

____________________________________________________________________

REASONS OF THE COURT

(Given by Asher J)

Introduction

[1] This is an appeal concerning the last will of Kruzo Phillips. Mr Phillips died on 22 August 2009 and his last will was dated 24 April 1995 (the Will). In the decision declining defendant summary judgment appealed from, Associate Judge Bell held that certain provisions in the Will were invalid.[1] The trustees and executors of Mr Phillips’ estate, John Crawford and Philip Wells, who had sought defendants’ summary judgment, challenge that finding in this appeal. The respondent, Doris Phillips, was the plaintiff in the High Court. She is the de facto partner of Mr Phillips’ only brother, John Yukich (now deceased), to whose estate the relevant part of Mr Phillips’ estate will pass in the event of an intestacy.

Background

[2] Mr Phillips had owned a picturesque but run-down 184-hectare farm at Opononi called “Onoke” since 1989 (the Farm). It is situated on a peninsula on the Hokianga Harbour. It does not seem as if Mr Phillips ever farmed it personally. After he purchased the Farm, Mr Phillips met the appellant John Crawford who took on a management role. This included hiring and managing those who worked the Farm, and organising its grazing, maintenance and repair. Mr Phillips and Mr Crawford became friends.
[3] Mr Phillips’ long term lawyer was the appellant Philip Wells of Auckland. On 24 April 1995 Mr Phillips visited Mr Wells at his office to discuss and execute the Will. Mr Wells took instructions and drafted the Will while Mr Phillips waited. Mr Phillips reported to Mr Wells that he had fallen out with his brother, Mr Yukich. Mr Wells deposed that Mr Phillips wished to appoint him and Mr Crawford as co‑executors of his will. Mr Wells prepared the Will and it was signed that day.
[4] In accordance with Mr Phillips’ instructions, the Will appointed Messrs Crawford and Wells as executors and trustees. The Will is in short form and its terms are central to the appeal. We set out the three critical clauses:

3. I GIVE DEVISE AND BEQUEATH all the real property and chattels thereon comprising my farm situated in Opononi comprised and described within Certificates of Title 501/258 and 2D/364, North Auckland Land Registry or the estate or interest therein which I may possess at my decease (hereafter called “the property”) to my trustees UPON TRUST that my trustees shall permit the said JOHN CRAWFORD to use, occupy and enjoy the property, its improvements, chattels, equipment, machinery, live and dead stock, crops and produce without impeachment of waste and all profits therefrom during his life time for so long as he shall elect he[[2]] managing, farming and maintaining the property as he has done during my life time and paying all outgoings in connection therewith provided that and I EXPRESS THE WISH without creating a binding trust thereby that the property shall be kept in one unit and not subdivided or otherwise affected during the continuation of the said interest.

4. AFTER the termination of such interest I DIRECT my trustees to dispose of the property in such manner as my trustees shall think most appropriate PROVIDED THAT and I EXPRESS THE WISH without creating a binding trust thereby that the property shall not be subdivided or otherwise affected but shall be maintained in one unit as far as is practicable.

5. I GIVE DEVISE BEQUEATH AND APPOINT all the remainder of my property both real and personal whatever and wherever unto my trustees upon trust to pay thereout all my just debts funeral testamentary and administration expenses and to stand possessed of the residue and of all assets and investments comprising the same (hereafter called “my residuary estate”) UPON TRUST to dispose of my residuary estate in such manner as my trustees think appropriate.

[5] The Will went on to direct that Mr Wells would have no liability “either in his capacity as executor and trustee or personally” in respect of any matter or liability arising out of the administration of the estate and the provisions of the Will. There was an also standard direction that any trustee being a solicitor would be entitled to charge and be paid professional fees.
[6] Mr Phillips died on 22 August 2009 when he was 69. Probate was granted on 28 September 2009. Mr Crawford continued to manage the Farm after Mr Phillips’ death as he had before, and continues to do so today. He has never done the Farm work personally. He has an interest in the Farm in the two capacities set out in the Will, first as an executor and trustee, and second under the interest set out in cl 3, which we will refer to as the “management interest”.[3]
[7] Mrs Phillips filed these proceedings in 2016 in her capacity as administrator of the estate of Mr Yukich. In a short statement of claim, two issues were raised which can be viewed as two causes of action. First, declaratory orders were sought that cls 4 and 5 of the Will directing disposition of Mr Phillips’ assets created a trust which was invalid for lack of certainty, and that by reason of the uncertainty there was an intestacy in the residuary estate, which passed to the persons entitled on an intestacy. Second, Mrs Phillips pleaded that Mr Crawford’s determinable management interest under cl 3 of the Will had terminated when Mr Crawford elected not to manage the Farm and maintain the Farm personally. Therefore, the Farm formed part of the residuary estate. An order was sought vesting the Farm and the residuary estate in Mrs Phillips as administrator of Mr Yukich’s estate. Messrs Crawford and Wells applied for defendants’ summary judgment alleging that the causes of action could not succeed.

High Court

[8] Associate Judge Bell held that it had been shown that Mrs Phillips would fail in her claim that Mr Crawford’s management interest had determined.[4] That part of the Judge’s decision, which turned on matters of fact, is not challenged in this appeal. He did, however, hold that Messrs Crawford and Wells had failed to show that the cause of action relating to the uncertainty in cls 4 and 5 of the Will could not succeed. Indeed he found that cls 4 and 5 were trust powers that failed for uncertainty of objects.[5] Because defendant summary judgment can only be ordered if none of the causes of action can succeed,[6] the summary judgment application was dismissed.[7] However, the paragraphs in the statement of claim relating to the termination of the management interest were struck out.[8]
[9] The sole issue to be determined in this appeal is whether Associate Judge Bell was correct in his view that cls 4 and 5 of the Will created a trust which was invalid for uncertainty. Although this is a summary judgment appeal, counsel argued the appeal on the basis that this Court would determine the issue. It was stated by Somers J in Pemberton v Chappell:[9]

Where the only arguable defence is a question of law which is clear-cut and does not require findings on disputed facts or the ascertainment of further facts the Court should normally decide it on the application for summary judgment, just as it will do so on an application to strike out a claim or defence before trial on the ground that it raises no cause of action or no defence.

[10] Here there is no dispute about the facts in relation to the issue.
[11] Although Associate Judge Bell was dealing with a defendants’ summary judgment application, he followed the approach of fully examining and determining the invalidity issue. Neither counsel objected to this approach, or the procedure adopted by the learned Judge. As sought by the parties, we will allow or dismiss the appeal based on our analysis of whether cls 4 and 5 are invalid for uncertainty.

The issues

[12] Mr Blaikie for Mrs Phillips submitted that cls 4 and 5 create a trust which has failed because they do not satisfy the trust requirement for certainty of objects.
[13] Mr Steele for Messrs Crawford and Wells submitted on the other hand that cl 4 is a general power of appointment for which there is no requirement for certainty of objects. The power is discretionary rather than imperative. The power was vested by Mr Phillips in Messrs Crawford and Wells in an unrestricted manner, so that they could dispose of the Farm and benefit whom they please. The power did not have to be exercised. He submitted that cl 5 has no application to the Farm or the proceeds of its disposition.
[14] There are therefore two issues on appeal:

Trusts and powers

[15] As a preliminary point we note that s 8(4) of the Wills Act 2007 (the 2007 Act) has made it clear that the creation of a power or a trust to dispose of property is not void if created by a will because it is a delegation of the will-maker’s power to make a will, if the power or trust would have been valid if made by the will-maker in the will-maker’s lifetime.[10] Although the Will in question was executed in 1995, and the 2007 Act does not apply, it has not been submitted to us that we should apply any rule that the will-making power may not be delegated. Any such submission would have faced difficulty given the judgment of Hoffmann J in Re Beatty’s Will Trusts stating that such a rule was a chimera.[11] This view is now widely accepted and is reflected by s 8(4) of the 2007 Act.[12]
[16] The difference between a trust and a mere power was explained by Gresson J in Re McEwen (Deceased):[13]

Though there is a close resemblance between trusts and powers of appointment, the distinction must be recognized and borne in mind. There is, on the one hand, a trust properly so called, and, on the other hand, a mere power; and somewhere between is a power, which in terms is a power, but which is in the nature of a trust; where the power given is intended to be exercised, and the discretion relates only to the choice of objects. Such a case approximates to a trust; but there is no trust where what is given is a mere power which the donee may, or may not, exercise as he chooses. Whether a power of appointment merely authorizes the donee to dispose of property in a certain manner, or whether it imposes on him an obligation to do so, is sometimes a question of considerable difficulty.

[17] Lord Hodson similarly stated in Re Baden’s Deed Trusts:[14]

The distinction between a trust and a mere power can be stated shortly although the short statement will require some explanation. It is that where there is a trust there is a duty imposed upon the trustees who can be controlled if necessary in the exercise of their duty. Whether the trust is discretionary or not the court must be in a position to control its execution in the interests of the objects of the trust. Where there is a mere power entirely different considerations arise. The objects have no right to complain. Where by the instrument creating the power the discretion is made absolute and uncontrollable the court cannot interfere ... The trust in default controls and he to whom the trust results in default of exercise of the power is in practice the only one competent to object to a wrongful exercise of the power by the donee.

[18] It can be seen that the donee of a power has a discretion that is not by its nature amenable to court control. A trustee of a trust in contrast has mandatory duties which the court must be able to control. The settlor of a trust must set out the persons who are intended to benefit from the trust and the extent of the benefit, so that the ambit of the trustees’ duties can be discerned and enforced.[15] In the case of a class, there must be specified criteria that enable the trustees to determine which persons are or are not beneficiaries. A trust will fail if the description of the object to which the trust property is to be applied is too vague to enable the court to enforce it.[16] The trustees must be able to discern whether any given person is an object of the trust or not.[17]
[19] Any trust here is created by the Will, and in determining the different positions we acknowledge that a court seeks to avoid an intestacy, and will try to recognise the will-maker’s plain intentions. The court will if possible try to uphold a will.[18] That being said, if this Will does create a trust, the trust requirement of certainty of objects is not a technicality. Certainty is required because of an important practical concern; if a will-maker does not intend to benefit anyone in the whole world, but rather to instruct trustees to benefit specific persons or a class of persons, the person or class must be sufficiently certain for the trustees to do their duty in accordance with the directions. If there is insufficient certainty, the result may be injustice. Persons who it was not intended to benefit may benefit, and those who were intended to benefit may be left with no remedy. In the will context the result is intestacy.

Analysis

A trust or a power?

[20] Whether the Will has created a trust power or a mere power is in the end a matter of construction, to be resolved by looking at the words in the relevant parts of the Will. The key clauses, cls 3, 4 and 5, must be considered together to put the meaning of each in context. The actual words used are critical. We agree with the observation of Associate Judge Bell that it is important to focus on those words, and not to be diverted by decisions on wills with apparently similar words.[19]
[21] We first consider cls 3 and 4 and their relationship. Under cl 3 of the Will the Farm was devised and bequeathed to Messrs Crawford and Wells “UPON TRUST” and the trustees were instructed to permit Mr Crawford to, during his lifetime, use, occupy and enjoy the Farm for so long as he continued managing, farming and maintaining it. Plainly, because of the provisions of cl 4, which gives directions to the trustees “AFTER the termination of such interest”, the trust survives the expiry of the management interest and the trustees must dispose of the Farm. The words used are mandatory; “my trustees to dispose of the property”.
[22] In both cls 3 and 4 of the Will the existence of a trust obligation is inferentially recognised by the proviso: “I EXPRESS THE WISH without creating a binding trust thereby” that the Farm not be subdivided. This indicates that the preceding obligation set out in both clauses was a trust obligation. The exclusion of the trust for the purposes of the proviso presupposes the existence of a trust in relation to the obligations which precede it.
[23] We turn to the relationship of cl 4 with cl 5. We agree with Mr Steele that cl 4 is self-contained in that it gives Messrs Crawford and Wells the power to not only dispose of the Farm in the sense of transferring it, but also implicitly, after sale, the power to dispose of the proceeds to whomever they wished. Clause 5 applies to the residue of the estate, limited as it may be. There is no material difference between the trustees’ duties arising under each clause. In both cases the trustees are to dispose of the property in the “manner [they] shall think most appropriate”, although in cl 5 “most” is omitted.
[24] Mr Steele submitted that Messrs Crawford and Wells could, subject to the management interest, appoint the property to any person they selected. Nevertheless he eschewed any suggestion that Messrs Crawford and Wells could benefit themselves in the exercise of what he called the power conferred by cl 4. We accept that, even if cl 4 conferred a power, in certain contexts Messrs Crawford and Wells could be subject to fiduciary duties in its exercise that would prevent them from exercising the power in their own favour. That feature of itself does not turn a power into a trust power.[20]
[25] The language of cl 5 is also that of mandatory trust obligations. The trustees are obliged to act. They are to pay out all the debts and expenses and to:

[S]tand possessed of the residue and of all assets and investments comprising the same (hereafter called “my residuary estate”) UPON TRUST to dispose of my residuary estate in such manner as my trustees think appropriate.

While this may not be conclusive, the direction is a powerful indication that a trust was intended.

[26] It will be noted that there is more than one trustee and executor appointed, a usual practice when trustees rather than donees are being appointed. As was said by Pennycuick J in Re Pugh’s Will Trusts:[21]

One point in favour of [counsel for the plaintiff’s] argument is that [the plaintiff] is the sole trustee. It is easier to infer an intention that a sole trustee should take beneficially than that two or more trustees shall do so, but that indication is not, I think, sufficient.

[27] It is clear that the Will does not intend Messrs Crawford and Wells to act as simple donees of the Farm. If that had been the intention, the Will would have said so and there would have been no need for a management interest. Similarly, the intention cannot have been for Mr Crawford to be the sole donee; the Will could have easily provided for that, but did not.
[28] Instead the Will provides for the Farm, the only significant asset, to be held on trust on terms for the benefit of Mr Crawford and then for it to be sold and the proceeds distributed. But to whom are the proceeds to be distributed, and when? It is an unusual and unsatisfactory aspect of cls 4 and 5 of the Will, that there is a reference to disposing of assets, but no reference to distribution.
[29] We reject a submission made by Mr Steele that the Will gives Messrs Crawford and Wells the option of not disposing of the Farm. They are required to do so by the mandatory language of cl 4 which directs disposal after termination of the management interest. Where a primary trust is expressed in mandatory form, that strongly suggests it is in the nature of a trust and not a power.[22] The grant of the circumscribed management interest to Mr Crawford indicates that he is not to be an unrestricted donee of the Farm; and that he has only a limited right to it on the stated management interest terms. If he was to have an unrestricted power, the Farm would have been left for his benefit without a management interest.
[30] This conclusion is supported by two other provisions of the Will. First, the Will at cl 6 exonerates Mr Wells from liability as executor or trustee or personally, indicating that he is operating as a trustee and an executor, but not as the donee of a power. Second, cl 7 of the Will gives any executor and trustee who is a solicitor the right to the payment of any professional charges, again indicating a professional rather than beneficial role, consistent with Mr Wells acting as a trustee and not a donee.
[31] The answer is often clear if there is a gift over. The settlor or will-maker then can be taken to contemplate a non-exercise of the power. It shows the optional nature of the power, indicating that it is not a trust. For example, in Re Beatty’s Will Trust Hoffmann J said:[23]

Clauses 3 and 4 do not impose any trusts to distribute the chattels or money over which they operated. That is shown by the gift over to residue of the property which has not been distributed within the two-year period.

[32] Similarly in Re McEwen (Deceased) Gresson J said:[24]

The presence of a gift over in default of appointment precludes any implication of a trust; it shows that non-exercise of the power was contemplated.

[33] In the case of the Will, there is no gift over. The absence of such a gift over indicates that Mr Phillips intended that Messrs Crawford and Wells, as trustees, distribute the proceeds, which in turn indicates the creation of a trust and not a power.
[34] In summary, the mandatory obligations placed on Messrs Crawford and Wells, their description as trust obligations, the absence of any gift over, the limited management interest given to Mr Crawford and the indicia of a purely professional role for Mr Wells, all indicate that Messrs Crawford and Wells were to act as trustees and not donees of a power in selling and disposing of the Farm.
[35] We test our conclusion that the Will creates a trust and not a power against one of the cases relied on by Mr Steele. He referred to the decision of the Ontario Court of Appeal in Re Nicholls.[25] The will there directed the executor to follow “the dictates and directions given to him from time to time” by a certain person, as to the distribution of the residue of the estate. If that person predeceased the testator she appointed another person. Should that person predecease her, she appointed a third person to give directions as to the distribution of her estate. There were no words indicating a trust in the relevant paragraphs of the will, and unsurprisingly the Court found it impossible to discern in the language of the deceased any intention to create a trust.[26] What was created was therefore a general power of appointment; an unfettered discretion of the type that an absolute owner would have.[27] There were in effect two gift overs. The opposite is the case here. Words of trust were used throughout the Will, and indeed Mr Steele accepts as he must that Messrs Crawford and Wells owe fiduciary duties. The language is all of a trust. There is no gift over.
[36] We conclude that the Will creates a trust for the disposal of the Farm and distribution of the proceeds.

Uncertainty

[37] There is no doubt that it is the task of a court to ascertain a will-maker or settlor’s intentions and to do its best to give effect to those intentions. Words are given their plain meaning and read in their immediate context. If that does not produce a clear answer, the court will examine the context in which the words were used and strive to give a reasonable meaning to the language. There will be cases where despite a court’s best efforts, the settlor’s intentions cannot be clearly discerned, and in those cases a trust will fail. Associate Judge Bell has given effect to the intention to grant the management interest. The uncertainty relates to what happens after that management interest terminates.
[38] It is a well-established principle that a discretionary trust cannot be created in favour of a class of objects which is virtually without limit. In Yeap Cheah Neo v Ong Cheng Neo for example, the Privy Council held that a trust of residue “to apply and distribute the same, all circumstances duly considered, in such manner and to such parties as to them [the executors] may appear just” failed “for want of adequate expression of it”.[28] Similarly in Re Carville, a gift of residue “to be disposed of as my executors shall think fit” was held invalid because the will-maker had failed to define the manner in which the distribution was to take place or the object of the share.[29]
[39] The need for a trust to be administratively workable was emphasised by Wilberforce LJ in McPhail v Doulton.[30] The flaw in that case was the absence of specificity in the form and nature of the trust. There were no identifiable criteria which the trustee could observe and which the Court could use to enforce the trust.[31]
[40] This need for certainty is reflected in the decision of Wilson J in Re White (Deceased), relied on by Mr Blaikie.[32] In that case the will provided in relation to a sum of money: “I GIVE AND BEQUEATH the same to my Trustee absolutely to dispose of the same as my trustee in his absolute discretion shall appoint or think fit”. It was held that the trustee took the ultimate surplus or residue not beneficially but upon trust.[33] The words were held to be too vague and indefinite to constitute a valid trust.
[41] The trust in this Will is not uncertain in the sense of selecting among members of a specified class, as in the example given by Lord Wilberforce in McPhail v Doulton of “all the residents of greater London”. [34] It is uncertain because the words used are so vague that it is impossible to discern a conceptually certain person or group of persons who may benefit. Clauses 4 and 5 of the Will create trusts, but do not specify with any attempt at precision those who may benefit from the trusts. Particular issues left open are:
[42] On the material presently available to the Court, there is conceptual uncertainty in relation to what should happen to the proceeds of the sale of the Farm after the termination of the management interest. This was an inherent defect in the Will from the time of its execution. While Messrs Crawford and Wells will be able to contest the claim at trial, the Associate Judge’s conclusion, which we uphold, is fatal to the defendants’ summary judgment application.

Conclusion

[43] We conclude therefore on the material presently available that the trust created by cls 4 and 5 of the Will must fail, and that Associate Judge Bell was right to dismiss the application for defendant summary judgment.

Result

[44] The appeal is dismissed.
[45] At the request of Mr Blaikie for the respondent, and without objection from Mr Steele, we reserve the question of costs to allow the parties to negotiate and reach agreement. If agreement cannot be reached on costs the parties are to file submissions within 30 working days of the date of this judgment.





Solicitors:
Martelli McKegg, Auckland for Appellants

[1] Phillips v Crawford [2017] NZHC 1478, [2017] NZAR 1233 at [60].

[2] This typographical error is in the original document and we leave it uncorrected.

[3] ` We acknowledge that in doing so we are departing from the terminology of “life interest” used by the parties and Associate Judge Bell.

[4] At [29]–[30].

[5] At [60].

[6] High Court Rules 2016, r 12.2(2).

[7] Phillips v Crawford, above n 1, at [63].

[8] At [63(b)–(c)].

[9] Pemberton v Chappell [1986] NZCA 112; [1987] 1 NZLR 1 (CA) at 4.

[10] See also Law Commission Succession Law: A Succession (Wills) Act (NZLC R41, 1997) at 17.

[11] Re Beatty’s Will Trusts [1990] 1 WLR 1503 (Ch) at 1509.

[12] See David Hayton, Paul Matthews and Charles Mitchell Underhill and Hayton: Law of Trusts and Trustees (19th ed, LexisNexis, London, 2016) at [8.88].

[13] Re McEwen (Deceased) [1955] NZLR 575 (SC) at 577.

[14] Re Baden’s Deed Trusts [1970] UKHL 1; [1971] AC 424 (HL) at 440–441.

[15] Chichester Diocesan Fund and Board of Finance (Inc) v Simpson [1944] UKHL 2; [1944] AC 341 (HL) at 349.

[16] Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (19th ed, Thomson Reuters, London, 2015) at [4-035]. See also Re Astor’s Settlement Trusts [1952] 1 All ER 1067 (Ch) at 1071 and 1075; and Morice v Bishop of Durham [1805] EngR 97; (1805) 10 Ves Jun 522, 32 ER 947 (Ch).

[17] Re Gulbenkian’s Settlements Trusts [1970] AC 508 (HL).

[18] See for example Re Harrison (1885) 30 Ch D 390 (CA) at 393–394.

[19] Phillips v Crawford, above n 1, at [45].

[20] Re McEwen (Deceased), above n 13, at 577; and Re Beatty’s Will Trusts, above 11, at 1506.

[21] Re Pugh’s Will Trusts [1967] 1 WLR 1262 (Ch) at 1267.

[22] Re Baden’s Deed Trusts, above n 14, at 438.

[23] Re Beatty’s Will Trusts, above n 11, at 1506.

[24] Re McEwen (Deceased), above n 13, at 577.

[25] Re Nicholls (1987) 34 DLR (4th) 321 (ONCA).

[26] At 324.

[27] At 330.

[28] Yeap Cheah Neo v Ong Cheng Neo (1875) LR 6 PC 381, 390–392.

[29] Re Carville [1937] 4 All ER 464 (Ch) at 467.

[30] McPhail v Doulton [1970] UKHL 1; [1971] AC 424 (HL) at 457.

[31] Geraint Thomas Thomas on Powers (2nd ed, Oxford University Press, Oxford, 2012) at [10.33].

[32] Re White (Deceased) [1963] NZLR 788 (SC).

[33] At 790.

[34] McPhail v Doulton, above n 30.

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