Roman Catholic Archbishop of Melbourne v Lawlor & Ors; His Holiness the Pope v National Trustees, Executors and Agency Co of Australiasia Ltd & Ors
51 CLR 11934 - 0523C - HCA
(Judgment by: Dixon J)
Between: Roman Catholic Archbishop of Melbourne
And: Lawlor & Ors
Between: His Holiness the Pope
And: National Trustees, Executors and Agency Co of Australiasia Ltd & Ors
Judges:
Gavan Duffy CJ
Rich J
Starke J
Dixon JEvatt J
McTiernan J
Subject References:
Charities
Gift to establish Catholic daily newspaper
Validity
Dependent relative gift
Taxation and revenue
Estate duty
Alteration of statutory order of application of assets
Contrary provision
Legislative References:
Property Law Act 1928 (Vic) No 3754 - s 131
Administration and Probate Act 1928 (Vic) No 3632 - s 33; s 34; s 163; Second Schedule, Part II
Estate Duty Assessment Act 1914 No 22 - s 35
Judgment date: 23 May 1934
MELBOURNE
Judgment by:
Dixon J
The Roman Catholic Archbishop of Melbourne and the Bishops of Ballarat, Bendigo and Sale compose the Hierarchy in Victoria. To them the testator specifically bequeathed certain personalty "as a nucleus, to establish a Catholic daily newspaper." He proceeded to bequeath specifically other personal property "to the same beneficiaries ... to found a farm, or supplement those already secured, for the training of delinquent or orphan boys, to country life; the income from these two benefactions, to be used for Catholic education, or any good object the Hierarchy may decide, until sufficient funds are in hand, to found the daily paper and secure the farm." Half the residue of the estate he gave "to the Hierarchy in addition to the bequest, already made, to establish a Catholic daily paper." The construction of this residuary disposition is disputed, but, in my opinion, its meaning is that, for the purpose of establishing a Catholic daily paper, an additional bequest is made to the Hierarchy, not that, besides the bequest already made for establishing a Catholic daily paper, a bequest, unconditioned by any expression of purpose, is made to the Hierarchy.
The specific and the residuary gift alike raise the question whether a bequest for the establishment of a Catholic daily paper is valid. "A trust to be valid must be for the benefit of individuals, which this is certainly not, or must be in that class of gifts for the benefit of the public which the Courts in this country recognize as charitable in the legal as opposed to the popular sense of that term" (per Lord Parker of Waddington, Bowman v Secular Society Ltd, [F33] at p. 441). "There are four objects, within one of which all charity, to be administered in this Court, must fall; 1st relief of the indigent; in various ways: money: provisions: education: medical assistance; etc; 2ndly, the advancement of learning: 3rdly, the advancement of religion; and 4thly, which is the most difficult, the advancement of objects of general public utility" (Sir Morice v Bishop of Durham, [F34] at p. 951). This classification, which, in substance, was adopted by Lord Macnaghten in Pemsel's Case, [F35] does not mean that whatever can be brought within the description of one of these heads is a good charitable purpose, but that what cannot be referred to any of them is not recognized as charitable (In re Macduff). [F36] A trust for the purpose of religion is prima facie a trust for a charitable purpose. It is, however, not every purpose of religion that falls within the legal conception of charity. Religious uses or purposes, using these terms in their natural unrestricted meaning, undoubtedly include purposes which may or may not be charitable (cf., per Cussen J., In re Dobinson; Maddock v Attorney-General). [F37] The prima facie rule supplies a presumption which, if no contrary intention appears in the trust instrument, operates to confine the religious purpose within the boundaries of legal charity. "In connection with the expression 'charitable uses or purposes,' and also 'religious purposes,' the Court has taken upon itself to give them what may be called artificial meanings, and to read those artificial meanings into the wills of testators as well as into Acts of Parliament. 'Charitable uses or purposes' applies to much more than almsgiving or the relief of poverty, and extends to a number of matters set out in The Commissioners for Special Purposes of the Income Tax v Pemsel. [F38] On the contrary, 'religious purposes,' for the purpose of upholding bequests, has been restricted in its meaning to such purposes or uses as are charitable, so that by these two devices charitable uses or purposes are made very extensive, and religious uses or purposes are made sufficiently restricted to fit in with that extensive meaning of charitable uses or purposes" (per Cussen J., In re Dobinson; Maddock v Attorney-General). [F39]
"The process by which in England it has been held that a trust for 'religious purposes' must receive effect is thus concisely stated by Lindley L.J. in the case of White v White, [F40] at p. 53.'We come therefore to the conclusion, first, that the gift is for religious purposes; and secondly, that being for religious purposes, it must be treated as a gift for 'charitable' purposes unless the contrary can be shewn. If once this conclusion is arrived at the rest is plain. A charitable bequest never fails for uncertainty'"
(Grimond (or Macintyre) v Grimond, [F41] at p. 609, per Lord Moncrieff, whose judgment was approved in the House of Lords). [F42]
In order to be charitable the purposes themselves must be religious; it is not enough that an activity or pursuit in itself secular is actuated or inspired by a religious motive or injunction: the purpose must involve the spread or strengthening of spiritual teaching within a wide sense, the maintenance of the doctrines upon which it rests, the observances that promote and manifest it (cf. Keren Kayemeth Le Jisroel Ltd v Inland Revenue Commissioners, [F43] at pp. 657, 661). The purpose may be executed by gifts for the support, aid or relief of clergy and ministers or teachers of religion, the performance of whose duties will tend to the spiritual advantage of others by instruction and edification; by gifts for ecclesiastical buildings, furnishings, ornaments and the like; by gifts to provide for religious services, for sermons, for music, choristers and organists, and so forth; by gifts to religious bodies, orders, or societies, if they have in view the welfare of others. A gift made for any particular means of propagating a faith or a religious belief is charitable; moreover, a disposition is valid which in general terms devotes property to religious purposes or objects. But, whether defined widely or narrowly, the purposes must be directly and immediately religious. It is not enough that they arise out of or have a connection with a faith, a church, or a denomination, or that they are considered to have a tendency beneficial to religion, or to a particular form of religion.
The law has found a public benefit in the promotion of religion as an influence upon human conduct; but it has no standard by which to estimate what public benefit of that order is produced indirectly or incidentally by means which, although they may be considered to contribute to the good of religion, are not in themselves religious and do not serve directly a religious object. There have been many, and there are still some, provisions of the law, the maintenance or abrogation of which has been a matter of deep concern to adherents of one or other religious faith. But these have been considered, not charitable religious purposes, but political objects. In Bowman's Case, [F44] Lord Parker of Waddington said:"The abolition of religious tests, the disestablishment of the Church, the secularization of education, the alteration of the law touching religion or marriage, or the observation of the Sabbath, are purely political objects. Equity has always refused to recognize such objects as charitable ... a trust for the attainment of political objects has always been held invalid, not because it is illegal, for every one is at liberty to advocate or promote by any lawful means a change in the law, but because the Court has no means of judging whether a proposed change in the law will or will not be for the public benefit, and therefore cannot say that a gift to secure the change is a charitable gift. The same considerations apply when there is a trust for the publication of a book. The Court will examine the book, and if its objects be charitable in the legal sense it will give effect to the trust as a good charity: Thornton v Howe; [F45] but if its object be political it will refuse to enforce the trust: De Themmines v De Bonneval." [F46] It is accordingly well recognized that what concerns a religious denomination goes far beyond the religious purposes which are charitable. "There are, beyond question, many purposes peculiar to every religious denomination, which are not charitable" (per Lord FitzGibbon L.J., MacLaughlin v Campbell). [F47]
The objects of a denomination may extend to purposes which, although pious, philanthropic, or benevolent, may not be charitable (cf. per Holmes L.J. (4); cf. per Porter M.R.) [F48] Thus, in In re Jackson; Midland Bank Executor and Trustee Co v Archbishop of Wales, [F49] a bequest to the Archbishop for the time being of Wales to be applied by him inter alia, "in his discretion in any manner which he might think best for helping to carry on the work of the Church in Wales" was held bad by Eve J., because, "Any expenditure which he might in his discretion think best calculated for helping the work of the Church would ... be within his discretion irrespective of the question whether it was of a charitable nature or not". [F50] Counsel for the next of kin said:"It is impossible on the true construction of the will to say that the use of the Archbishop's discretion must necessarily be charitable. He might use the money provided by the gift to promote a newspaper or a political campaign having for its object the restoration of the Established Church in Wales. That clearly would not be a charity". [F51] (Cf. per Russell J. in In re Tetley, [F52] who, in relation to "patriotic purposes" gives the illustration of a newspaper.) In In re Bain [F53] a bequest to the Vicar of a Church "for such objects connected with the Church as he shall think fit," was upheld only because it was construed by the majority of the Court as confined to objects directly connected with the Church in contradistinction to objects which are only conducive to the welfare of the parishioners or the congregation who attend the Church; that is, as confined to the support of the Church, its fabric, and its services.
It was agreed, however, that, if the bequest included the various activities organized or carried on under the superintendence or authority of the Church, the gift would be bad (cf. In re Stratton; Knapman v Attorney-General). [F54] Again, in In re Davies; Lloyds Bank Ltd v Mostyn, [F55] Clauson J. and the Court of Appeal held invalid as non-charitable a trust in favour of an Archbishop "for work connected with the Roman Catholic Church in the ... Archdiocese." Clauson J. said: [F56]
"The expression 'work connected with the Roman Catholic Church' must cover much that was not in the strict sense charitable.
Thus, the carrying on of a social club, qualification for membership of which was adherence to the Roman Catholic faith, could not be said to be a charitable purpose, but it was 'work connected with the Roman Catholic Church.'"
Finally, in Dunne v Byrne, [F57] the Privy Council drew the contrast between purposes of religion and things conducive to the good of religion. They are not synonymous, but the latter is wider and more indefinite. "The fund," said Lord Macnaghten, [F58] "is to be applied in such manner as the 'Archbishop may judge most conducive to the good of religion' in his diocese. It can hardly be disputed that a thing may be 'conducive,' and in particular circumstances 'most conducive,' to the good of religion in a particular diocese or in a particular district without being charitable in the sense which the Court attaches to the word, and indeed without being in itself in any sense religious. In Cocks v Manners, [F59] there is the well known instance of the dedication of a fund to a purpose which a devout Roman Catholic would no doubt consider 'conducive to the good of religion,' but which is certainly not charitable. In the present case the learned Chief Justice suggests by way of example several modes in which the fund now in question might be employed so as to be conducive to the good of religion though the mode of application in itself might have nothing of a religious character about it." The instances, which the learned Chief Justice (Sir Samuel Griffith) had suggested, appear from the following passage from his judgment: [F60]
"It seems to me that purposes may reasonably be called conducive to the good of religion although they have no such direct tendency. For instance, it might well be said that a political propaganda for the purpose of procuring State endowment of churches or denominational schools, or the establishment of a newspaper conducted on religious or high moral principles, or the establishment of a contemplative order of nuns, would be purposes conducive to the good of religion. Certainly the Archbishop might reasonably think so. I do not at present see my way to deny such a proposition. But I do not think that either purpose would be a charitable purpose."
His Honour, therefore, gave as an instance of a non-charitable purpose the very thing which the testator has directed, and apparently the instance gained the approval of the Privy Council. Perhaps the dictum of Griffith C.J., so approved, should be treated as decisive of the present question. But, without the help of this precise authority, the answer to the question would not appear to me to be doubtful. The character of the journal contemplated by the testator is indicated only by the phrase "a Catholic daily newspaper." There are no expressions referring to the purposes of religion. It is only such expressions that should be presumptively construed as charitable. The reference to religious objects must be contained, if at all, in the word "Catholic." But that word embraces much more than the "purposes of religion" even in the ordinary unrestricted sense of those words. The phrase "Catholic daily newspaper" should, perhaps, be interpreted in the light of the fact that the fund is placed in the hands of the Hierarchy in Victoria. But even so its character cannot be considered as differing from similar newspapers conducted elsewhere under the authority of the Church, which, as the affidavit filed states, are established as "one of the means adopted by the Catholic Church for the maintenance and propagation of the Catholic faith and the advancement of the Catholic religion." The nature of those newspapers is described as follows:
"Such newspapers in addition to ordinary daily news and articles of general interest include a record of events of special interest to Catholics, contain articles on religious and moral topics, propagate and defend accepted moral principles and Catholic doctrines and religious, moral and sociological subjects, and oppose and denounce principles, ideas and doctrines hostile to or subversive of Christaian faith and morality."
The carrying on of such an object is not a charitable religious purpose, as the citations I have made from authority appear to me clearly to establish. The conduct of a newspaper may be considered conducive to religion or a form of religion, but no more. Indeed, it is an activity which cannot be confined even within the very wide description of "conducive to religion." There is, in my opinion, no other head of charity, to which the bequest can be referred, and, accordingly, I think it is not charitable.
It is contended, however, that s. 131 of the Victorian Property Law Act 1928 operates to give validity to the bequest for the establishment of a Catholic daily newspaper. This enactment makes the following provision:
- "(1)
- No trust shall be held to be invalid by reason that some non-charitable and invalid as well as some charitable purpose or purposes is or are or could be deemed to be included in any of the purposes to or for which an application of the trust funds or any part thereof is by such trust directed or allowed.
- (2)
- Any such trust shall be construed and given effect to in the same manner in all respects as if no application of the trust funds or any part thereof to or for any such non-charitable and invalid purpose had been or should be deemed to have been so directed or allowed."
The suggestion is that, in so far as religious purposes are contained within the description "Catholic daily newspaper," they may be segregated from the non-charitable elements with which they are associated in that description, and, by force of this section, given by themselves an independent effect. The contention appears to me to confound the purposes of the newspaper with the purposes of the trust. The purpose of the trust was to contribute to the foundation of a newspaper of a specified character. The character is non-charitable. A newspaper of another character is then assumed, having some of the attributes which the newspaper described by the will would possess, but lacking many others. Such a newspaper is necessarily different in character and its establishment is another purpose, not part of the same purpose. The object of s. 131 is apparent. It was to remove or provide against a very well known ground upon which many dispositions were invalidated. That ground is that a trust not in favour of an individual is wholly invalid, if, according to its terms, the trustees are at liberty to apply the fund as well to purposes outside the definition of charity as to purposes within it, and if independently of the trustees, no measure is provided of the amount applicable to the non-charitable purpose. "It is undoubtedly the law that, where a bequest is made for charitable purposes and also for an indefinite purpose not charitable, and no apportionment is made by the will, so that the whole might be applied for either purpose, the whole bequest is void" (per Lord Halsbury L.C., Hunter v Attorney-General, [F61] at p. 315). Such cases are altogether different from the present, where one particular application of the fund is authorized, namely, towards the establishment of a Catholic journal, and that object is not contained within the legal definition of charity.
The true application of the statutory provision is well illustrated by the directions of the will as to intermediate income of the same fund, namely, "the income from those two benefactions, to be used for Catholic education, or any good object the Hierarchy may decide, until sufficient funds are in hand, to found the daily paper and secure the farm." "Any good object" goes beyond charitable purposes and, therefore, apart from s. 131, the whole trust of income would fail, but the section operates to exclude the non-charitable purposes and leave the income applicable to Catholic education, and, perhaps, also to other charitable purposes answering the description "good object," although this is doubtful. Upon the assumption that the bequest to establish the newspaper was held void, it was contended that the trust of income should be upheld, either as an independent and severable trust, or because it was segregated and validated by the operation of s. 131. A charitable trust of income of indefinite duration would result. In my opinion the trust of income is dependent upon the trust of corpus. It is a direction for the application of income of a fund disposed of for a main purpose pending the effectuation of that purpose. The failure of the trust of corpus involves the trust of intermediate income, and s. 131 has, I think, no application. For these reasons I am of opinion that the answers given by the Full Court to the first three questions in the originating summons were right, and that the appeal from that part of the order should be dismissed.
This conclusion makes it necessary to consider the appeal from the declaration made by the Full Court in answer to the tenth question in the originating summons. That declaration is: "That the funeral testamentary and administration expenses, debts and Victorian probate duties and the pecuniary legacies are payable out of the bonds and stock of the testator not specifically bequeathed in or by the said will." The declaration gives effect to the interpretation which the Court placed upon a provision of the will introducing the gift of residue. The provision is as follows: "If the bonds and stock reserved for probate and any liability of mine, are insufficient for the purpose, and all the cash bequests mentioned, the more readily saleable (advantageously realizable) to be sold to meet the liability; the balance, if any, and the remainder of my estate shares etc., not mentioned or bequeathed, to be realized at an opportune time, in an active market, and divided equally one half to" etc
The order of application of assets is, in the absence of a contrary direction in the will, determined now by statute. In the case of funeral, testamentary and administration expenses, debts and liabilities payable out of the estate, not including Victorian probate duty and Federal estate duty, the incidence of the burden involved in their discharge is dealt with by s. 34 of the Administration and Probate Act 1928 and the Second Schedule thereto. The remarkable amendment to Part II. of the Schedule made by the Statute Law Revision Act 1933 (No. 4191) does not apply to this case. In the case of Victorian probate duty, the incidence is determined by s. 163 of the Administration and Probate Act 1928. In the case of Federal estate duty, it is determined by s. 35 of the Estate Duty Assessment Act 1914-1928.
(1) Funeral, testamentary and administrative expenses, debts and liabilities and pecuniary legacies: Secs. 33 and 34 and the Second Schedule of the Victorian Administration and Probate Act 1928 correspond to ss. 33 and 34 and the First Schedule of the English Administration of Estates Act 1925, whence they are taken.
The order of application of assets prescribed by s. 34 may be varied by the will of the deceased (Second Schedule, Part II., 8 (a)). Section 33, which has effect subject to the provisions of any will (sub-s. 7), imposes upon property as to which the deceased dies intestate a trust for conversion. The expression "intestate" includes a person who leaves a will, but dies intestate as to some beneficial interest in his real or personal estate (s. 4, definition of "intestate"). Out of the proceeds of conversion there are to be paid funeral, testamentary and administration expenses, debts and other liabilities properly payable thereout, having regard to the rules of administration contained in the enactment, and, out of the residue of the money, there is to be set aside a fund sufficient to provide for any pecuniary legacies bequeathed by the will, if any, of the deceased (s. 33 (2)).
In the order of application of assets prescribed for solvent estates, the first is:
"Property of the deceased undisposed of by will, subject to the retention thereout of a fund sufficient to meet any pecuniary legacies."
The second in order is property disposed of by a residuary or general gift, but, again, "subject to the retention thereout of a fund sufficient to meet any pecuniary legacies."
The third is property disposed of for the payment of debts; and the fourth, property charged with the payment of debts. Then the fifth is
"The fund, if any, retained to meet pecuniary legacies."
Last follow, in order, property specifically devised or bequeathed and property appointed under a power. We should, I think, hesitate to depart from the interpretation placed upon these provisions in England, at any rate by decisions of the Court of Appeal. It appears now to be established that the first category includes all property and every interest which is not effectually disposed of by will. If dispositions are void or lapse, and, in consequence an estate or interest remains undisposed of, that estate or interest falls into the category of assets first applied, in the statutory order of the application of assets. Further, it is established that a share of the residue given under a lapsed or void disposition falls under this head (In re Lamb, [F62] per Eve J.; In re Kempthorne, [F63] per Maugham J.; In re Tong, [F64] per Clauson J.; In re Worthington). [F65] (Contrast In re Kempthorne, [F66] per Lawrence L.J.)
It is also established that the undisposed of property, including lapsed and invalidly given shares of residue, is the primary source for the payment of pecuniary legacies. This is the interpretation put upon the words, "subject to the retention thereout of a fund sufficient to meet any pecuniary legacies," considered with the direction contained in s. 33 (2) to set aside a fund out of the proceeds of conversion to provide for them (In re Worthington). [F67] The application of the provisions so interpreted is attended by much difficulty. As the purpose of the rules contained in Part II. of the Schedule is to determine how the dispositions of the estate shall bear the outgoings such as debts and liabilities, which go in diminution of the total, it might have been understood as speaking of the various portions of the estate prior to that diminution. But pecuniary legacies form, not an outgoing from the estate, but portion of the estate liable in its due order to bear outgoings. Residue prior to the deduction of debts may be ascertained, and the debts may be thrown on that part or share of the amount so ascertained, which is undisposed of, in exoneration of other parts or shares. But the ascertainment involves the prior deduction of the amount of the pecuniary legacies. If these are then thrown against the undisposed of share of residue, the deduction is restored and the whole residue is swollen, including the lapsed share. Further, there is necessarily some contrariety between the will and the statutory directions. A will containing bequests of pecuniary legacies and residuary dispositions must mean that the residuary legatees shall take what is left after the deduction of pecuniary legacies. The payment of the legacies is meant to be prior to the ascertainment of the share of residue, which, ex hypothesi, lapses, and, according to the statutory directions, would provide the source of the payment. But the statutory rules have effect subject to any intention which appears from the will with reasonable clearness.
Thus, in the course of his judgment in In re Tong, [F68] referring to In re Lamb, [F69] Clauson J. says:
"If on the true construction of the will the residue meant that which was left after the debts and funeral and testamentary expenses and legacies had been paid, the will itself could have made provision for the discharge of those payments, and recourse to Part II. of the Schedule would be unnecessary."
But could true residue mean anything else? It appears to have been considered that a solution of the difficulty so arising is supplied by the existence of an express direction in the will for the prior deduction of legacies, debts or expenses in ascertaining residue. Such a direction has been treated as a sufficient indication that these burdens shall be regarded as discharged before the undisposed of residuary share is ascertained, and not out of that share. But effect is given to the statutory order in the absence of some such express direction, or, at any rate, of some reference to the deduction of these payments. In In re Lamb, the will gave specific and pecuniary legacies, and proceeded to direct that "the rest residue and remainder" of the estate should be divided into shares, one of which lapsed. Eve J. could "see nothing to exclude the application of the statutory order", [F70] and threw the pecuniary legacies [F71] as well as debts upon the lapsed share of residue. But, in In re Petty; Holliday v Petty, [F72] Astbury J. considered that the statutory order was displaced by the will because it directed conversion of the real and personal estate, and, out of the proceeds, payment of funeral and testamentary expenses, debts and legacies, and then disposed of "the residue of the said moneys" in moieties. He distinguished In re Lamb on the ground that the will in that case contained a mere direction to pay debts followed by a specific devise, a gift of legacies, and, subject thereto, a residuary disposition. In In re Atkinson; Webster v Walter, [F73] the lapsed gift was a devise of realty, not a share of residue. But the will bequeathed the personalty upon trust for conversion, and out of the proceeds, for payment of the funeral and testamentary expenses and debts and the legacies. Clauson J. said: [F74]
"Here the will contains a clear direction to the trustees to convert the personal estate and out of the moneys produced by such conversion to pay his funeral and testamentary expenses and debts: until that provision is worked out there is no necessity to have recourse to Part II. of the First Schedule of the Act."
In In re Kempthorne, [F75] a division of the residuary personalty was directed "subject to and after payment of my funeral and testamentary expenses and debts and the legacies bequeathed by this my will or any codicil thereto, and the duty on any legacies bequeathed free of duty." The Court of Appeal held that the statutory order of application of assets did not apply and make a lapsed share the primary source for payment of liabilities and legacies. Lord Hanworth M.R. said: [F76]
"The terms of the will are explicit and the fund, or net residue, is not ascertained-does not come into being-until the expenses, debts and legacies, have been paid."
Russell L.J., as he then was, said: [F77]
"The statutory order of application of assets is overridden by the testator's own provisions, the effect of which is (to put the result in another way) that the only personal estate as to which he has died intestate is a share of what personal estate remains after the expenses and debts have in fact been paid thereout."
In In re Tong, [F78] the Court relied upon the distinction between, on the one hand, an express direction to pay prior charges followed by a bequest of "the remainder" of the estate, and, on the other hand, the mere existence of prior charges which must be provided before ascertaining residue. The will directed payment of legacies free of duty and payment of all duty on gifts out of the estate, and it bequeathed pecuniary legacies and annuities and dealt with specific realty. The testator then disposed of "the remainder of my estate" in shares, one of which lapsed. Clauson J. said: [F79]
"When I come to the final gift I find a disposition of the 'remainder of my estate.' This I construe, in view of the preceding reference to estate duty, as a direction to pay the estate duty and the legacies out of the general estate before ascertaining the fund which is the subject-matter of the final gift; but I can find no direction dealing with funeral, testamentary and administration expenses, debts and liabilities, other than and except this estate duty. In order to ascertain how these expenses, debts and liabilities must be met I must, by reason of s. 34, sub-s. 3, of the Act turn to Part II. of the First Schedule."
Accordingly the statutory order prevailed in the case of debts and the like, but not in that of legacies. This judgment was approved in the Court of Appeal. But Romer L.J. said: [F80]
"I fail to find anything in the will amounting to an indication of the testator's intention that the funeral and testamentary expenses and debts generally should be paid in any other mode than that specified in Part II. of the First Schedule. Even if the testator had directed his executors to pay all his funeral and testamentary expenses and debts and then given the remainder of his estate on certain trusts, I should still have hesitated to say that this amounted to an indication that the expenses and debts were to be paid in any other order out of the assets than that provided for in the First Schedule.
The truth of the matter is that there is nothing in this Act which prevents or is intended to prevent executors from paying expenses, debts and liabilities out of the first assets coming to their hands available for the purpose; and Part II. of the First Schedule really only deals with the ultimate adjustment of the burden as between the parties becoming entitled to the testator's estate. Therefore the use of such a word as 'remainder' does not seem to me to make any difference. Such words throw no light on how as between the persons having beneficial interests in the remainder the liability for expenses and debts is to be apportioned. On this point I agree with the learned Judge."
(Cf. In re Littlewood; Clark v Littlewood.) [F81] In In re Worthington, [F82] the will bequeathed legacies free of duty, and then devised and bequeathed all the residue of the estate both real and personal in two equal shares, one of which lapsed. Bennett J. distinguished between debts and legacies on the ground that payment of the former was not, and of the latter was, directed. His decision was reversed by the Court of Appeal. Lord Hanworth M.R. said: [F83]
"The learned Judge seems to have read the will as providing for the payment of the legacies first and to have thought that the residue was not to be ascertained until after they had been paid. But the provisions of the statute indicate that unless there is some provision in the will which negatives the prescribed order of administration, that order of administration must apply both to legacies and to debts. The learned Judge seems to have thought that because of the specific reference to legacies in the will there was an indication of an intention that the statutory order of administration should not apply to them. But, after all, if legacies are given by a will, there must be a specific reference to them, and I do not see how that can be sufficient to alter the statutory order of administration."
Lawrence L.J. said: [F84]
"It was contended for the respondent that the gift of 'the residue of my estate' operated as showing an intention to effect such a variation. In my opinion that contention is not well founded. The will contains no direction as to how the executor is to administer the estate and no direction indicating an intention that the legacies should be paid otherwise than in the statutory order of administration."
He then expressed his agreement with what Romer L.J. had said in Tong's Case [F85] about the use of the word "remainder," and the absence of assistance from such words. Romer L.J. said: [F86]
"All I find is a gift of legacies and a gift of residue, and there is no direction given to the executor as to how, as between persons ultimately found to be interested in the estate, the debts, expenses and legacies are to be paid. I see no reason for departing from anything I said in In re Tong." [F87]
The observations of all three learned Judges suggest that language in the will, which does no more than express what is undeniable in any case, that residue must be arrived at after the deduction of prior charges, does not override the statutory order. I confess that I feel a difficulty in understanding why a different result should be produced by a specific direction to pay out of the fund which, after all prior deductions are made, constitutes residue.
The declaration of the Full Court now under appeal is based upon the view that the will provided how the debts and other charges and the legacies should be borne, and so displaced the statutory declaration which would have thrown them upon the property of the deceased undisposed of by will. The declaration, however, does not really solve the difficulty which has arisen. It declares that the legacies and charges are payable out of specific property which it describes as "not specifically bequeathed in or by the said will." But this means that, subject to the charge of debts and other outgoings and legacies, which the declaration imposes thereon, that very property forms a component part of the residue.
Now the whole question relates to residue.
The invalidity of the specific bequest for the establishment of a Catholic daily newspaper caused the specific property so bequeathed to fall into residue. Thus the question is whether the equal half share of the residue invalidly bequeathed to establish a Catholic daily newspaper should bear debts, charges, and legacies in priority to or ratably with the other half share of residue, the disposition of which is valid. Why should the fact, that specific assets forming part of residue are made the primary source for the payment of debts and other charges and legacies, affect the priority between the beneficiaries upon whom the shares devolve into which residue is divided? The division is of the beneficial property in the conglomerate mass of assets in which the specific assets required to answer debts, charges and legacies are contained, at any rate after and subject to that requirement. The effect of the will may have been considered to be to withhold from that mass so much of the specific assets or their proceeds as is applied in payment of legacies, debts and charges so as to produce the result described by Lord Russell in the passage already quoted from Kempthorne's Case, [F88] namely, that the only estate as to which the testator has died intestate is a share of what remains after expenses, debts and legacies have in fact been paid thereout. But the declaration does not cover the adoption of that answer to the question in the summons.
However the testator express himself, it appears to me that an intestacy as to a share of true residue is always of such a character. In the present case, the property of the deceased not specifically disposed of comprised land, money on current account and fixed deposit, shares in companies conducting commercial and industrial undertakings, and a large amount of Government stock and bonds. He bequeathed pecuniary legacies amounting to a considerable sum. The provision in the will upon which the Full Court relied is very difficult to understand. The will contains no reservation of bonds and stock for probate or any liability of the deceased. It does not, however, specifically dispose of any Government bonds or stock, and the testator may have considered his abstaining from any such specific bequest tantamount to a reservation. Commonwealth stock is accepted at par and Treasury bonds at face value in payment of Federal estate duty (s. 52 (c) of Commonwealth Inscribed Stock Act 1911-1932), and this may have been a reason with the testator for such a "reservation." But the chief difficulty in the sentence lies, not in the condition, but in the principal clause.
What is intended by the words "the more readily saleable (advantageously realizable)"?
The bonds and stock are assumed to be exhausted, and, in any case, are marketable securities all equally "readily saleable." Probably some other kind of property not specifically disposed of was intended to be specified; perhaps some class of shares. I am unable to supply the omission, or find a satisfactory meaning for this part of the clause. But the conditional statement "if the bonds and stock reserved for Probate and any liability of mine, are insufficient for the purpose, and all the cash bequests mentioned" does imply that he intended or supposed that some bonds and stock would be utilized to meet debts, probate duty and legacies. What bonds and stock he intended to refer to must be in some degree uncertain, but, on the whole, I think it should be taken to mean those not specifically disposed of, of which he died possessed. But, in my opinion, the implication that such bonds and stock are to be resorted to for debts and legacies, the reference to "the remainder of my estate shares etc., not mentioned or bequeathed," and the direction to divide this residue or balance, are not separately or in combination enough to displace the statutory rules for the application of assets. These matters evidence no intention to saddle any interest or property disposed of otherwise than as residue with legacies, debts and charges, nor any intention that residue should be considered as a net fund relieved from the incidence of these charges. Much less is there any intention disclosed inconsistent with a lapsed share of residue bearing the payments in priority to the share effectively given.
I think that funeral, testamentary and administration expenses and pecuniary legacies fall primarily on the property undisposed of by will consisting of the share of residue invalidly bequeathed to establish the newspaper.
(2) Victorian probate duty: The incidence of this duty is governed by s. 163 of the Administration and Probate Act 1928, which provides:
"Unless a contrary intention appears in the will the executor or administrator of the estate of any deceased person shall (subject to the provisions of the last preceding section) pay any duty payable on the whole or any part thereof under the provisions of this Part out of the residue of such estate."
By sub-s. 4 "residue" is defined for the purposes of the section as including unbequeathed personalty and any undevised realty. The considerations and views, which I have already set out, would lead to the conclusion that no "contrary intention appears." But, in any event, the definition of residue covers property as to which there is an intestacy, including lapsed shares of residue.
(3) Federal estate duty: No separate consideration seems to have been given to this duty in the Supreme Court, and little or no argument was directed to it before us.
By s. 35 of the Estate Duty Act 1914-1928, subject to any different disposition contained in the will, the duty is apportioned among the beneficiaries in proportion to their interests, certain charitable gifts excepted. The will does contain a different disposition, if, but only if, in the clause in question, the word "probate" includes Federal estate duty and the reference to "the bonds and stock reserved" is held to be sufficiently certain, and to refer to the Government stock and bonds not specifically disposed of by the will. No argument was directed to the first of these questions, and the second question was not discussed with reference to estate duty.
In these circumstances we should be justified in refusing to deal with the question in this Court. But I have already expressed my opinion that the clause should be taken to refer to stock and bonds not specifically disposed of. The question whether the testator, by his lay use of the word "probate," meant to include estate duty, is not susceptible of much argument. Estate duty is expressly mentioned in the originating summons. It is, I think, on the whole, better that we should decide the point. In my opinion, the testator did mean to include Federal estate duty under the word "probate." Accordingly, I think there is a different disposition, namely, a provision that estate duty shall be paid out of so much of the residue as consists of Government bonds and stock not specifically bequeathed.
I think the appeal from the declaration in answer to the tenth question in the summons should be allowed, and, except as to probate, estate and succession duty, the question should be answered: According to the order of the application of assets set out in Part II. of the Second Schedule of the Administration and Probate Act 1928, and primarily out of the invalidly disposed of share of residue. As to probate duty, it should be answered: Out of the shares of residue ratably. As to estate duty, for myself, I would answer the question: Out of so much of the residue as consists of Government stock and bonds, and as between the shares of residue ratably.