Sacks & Ors v. Gridiger & OrsJudges:
Supreme Court (NSW) - Equity Division
These two matters [No. 1380 of 1988 and No. 3550 of 1989] have been heard together and the evidence in each treated as evidence in the other. It is however convenient to deal with them separately. [Only the judgment in proceedings No. 1380 of 1988 is reproduced below.]
The material facts are as follows. Marianne Mathy-Frisdane (the testatrix) died on 15 October 1978. Mr R.E. Gridiger, a solicitor, is the trustee of the trusts of her will (dated 17 April 1978) and two codicils thereto (dated 9 October 1978 and 14 October 1978 respectively), of which probate was granted to him as the executor named in the will, on 12 February 1980. Clause 18 of the will as altered by cl. 5 of the first codicil provided as follows:
``18. I GIVE DEVISE AND BEQUEATH all the rest and residue of my Estate of whatsoever kind and wheresoever situate unto my said Trustee upon Trust to pay there out my just debts funeral and testamentary expenses and all death estate and succession duties State or Federal upon the whole of my dutiable Estate and to hold the residue then remaining of my residuary estate upon the following Trusts that is to say to divide my residuary estate into four equal shares:
- (a) As to three shares thereof I DIRECT that my Trustee hold the capital and income thereof and use the income derived therefrom for the establishment of an annual scholarship to be known as the `Marianne Mathy Scholarship' for a singing student not over the age of 25 years to be selected by the Director for the time being of the New South Wales Conservatorium of Music and the said Eric Clapham, Conductor PROVIDED THAT in the event that the said Director and the said Eric Clapham do not agree then I DIRECT THAT the decision of June Bronhill shall be conclusive.
- (b) As to the remaining one share I DIRECT that my Trustee hold the capital and income thereof and use the income derived therefrom to pay the school tuition fees for the children of DR MARCUS L SACKS of 256 Glenmore Road, Paddington in the said State while both or either of them remain at school and the residue of the income from this share to the Trustees for the time being of the Royal Society for the Prevention of Cruelty to Animals and to the Trustees for the time being of the Salvation Army in equal shares PROVIDED FURTHER that in the event that the children of the
ATC 4301said DR MARCUS L SACKS cease to attend school THEN I GIVE the remaining share of the capital to the Trustees for the time being of the Royal Society for the Prevention of Cruelty to Animals and to the Trustees for the time being of the Salvation Army in equal shares AND I DIRECT that the receipt of the Secretary Treasurer or other proper officer for the time being of the said Society or of the Salvation Army shall be a good and sufficient discharge for my Trustee.''
At all material times Dr Sacks has had two children, Carla and Elliott, both of whom were attending private schools at the time of the testatrix's death. Carla continued attending school until the end of 1984 and Elliott until the end of 1986. Tuition fees for their schooling, payable at the beginning of each term, were as follows:
Financial Amount of Cumulative Year Fees Total of Fees $ $ 1978-79 2,657 2,657 1979-80 2,928 5,585 1980-81 3,977 9,562 1981-82 5,105 14,667 1982-83 6,070 20,737 1983-84 6,810 27,547 1984-85 5,160 32,707 1985-86 4,495 37,202 1986-87 1,545 38,747
All these fees were paid to the schools concerned by Dr Sacks at or about the time they were incurred.
In response to a letter from Dr Sacks, Mr Gridiger's firm wrote to him on 5 June 1981 enclosing a cheque for $6,331 and again on 18 June 1981 enclosing a cheque for $3,786.20, in each case representing reimbursement to Dr Sacks from the estate for school fees paid by him for Carla and Elliott in respect of which Dr Sacks had furnished receipts to Mr Gridiger, covering the period from term III 1978 to term II 1981. On 24 September 1981 Dr Sacks wrote to Mr Gridiger enclosing receipts for term III 1981 and wrote again on 29 October 1981 with a reminder requesting reimbursement. Mr Gridiger wrote back on 11 November 1981 in the following terms:
``Dear Dr Sacks
Re: The Estate of the late Marianne Mathy-Frisdane
We acknowledge receipt of your letter of 29 October 1981 which was received by us on 3 November 1981.
As you are no doubt aware, the provision in the will concerning the payment of the school tuition fees for your children is to be paid from the income derived from the quarter share of the corpus.
To date, we have paid you $10,117.20. However, the income from the quarter share of the corpus amounts to $3,774.75 as at 30 June 1981.
The writer is conferring with counsel to ascertain whether a request should be made to you for a refund of the difference or whether the funds paid could be treated as an advance against future school tuition fees for your children.
You might care to continue to forward copies of receipts for school fees pending a decision in this matter.''
On 13 July 1982 Dr Sacks wrote to Mr Gridiger enclosing receipts for terms I and II 1982 and on 29 September 1983 wrote again enclosing receipts for term III 1982 and terms I, II and III 1983, on each occasion requesting (expressly or by implication) reimbursement from the estate. These letters apparently went unanswered, as did subsequent letters from Dr Sacks of 29 May 1986 and 23 July 1987 enclosing particulars and supporting documentation in respect of further school fees and requesting reimbursement from the estate.
The present proceedings were commenced on 16 February 1988, originally by Dr Sacks' two children as plaintiffs against Mr Gridiger as defendant. On 20 June 1989 the Salvation Army (New South Wales) Property Trust (``the Salvation Army'') and the Royal Society for the Prevention of Cruelty to Animals, New South Wales (``the RSPCA'') were added as defendants, and on 27 March 1990 at the commencement of the hearing, Dr Sacks was added as a plaintiff.
The pleadings in their final form comprise a ``Further Amended Statement of Claim'' filed on 27 March 1990, a defence by Mr Gridiger filed on 4 April 1990 (an earlier cross-claim by
ATC 4302Mr Gridiger being abandoned at the hearing), a defence by the Salvation Army filed on 22 August 1989 (and a cross-claim annexed thereto which was abandoned at the hearing except in so far as a special order in respect of the costs of the proceedings was claimed) and a defence by the RSPCA filed on 27 March 1990.
Actual receipts and payments of a revenue nature attributable to the one fourth share of the residuary estate dealt with by cl. 18(b) in respect of each financial year from the death of the testatrix until 30 June 1987 were as follows:
Financial Year Receipts Payments Net Income $ $ $ 1978-79 109.15 - 109.15 1979-80 284.91 639.30 (354.39) 1980-81 3,291.40 143.91 3,147.49 1981-82 4,784.00 975.78 3,808.22 1982-83 4,904.06 807.30 4,096.76 1983-84 7,244.93 2,198.03 5,046.90 1984-85 15,456.12 1,931.25 13,524.87 1985-86 15,377.01 440.40 14,936.61 1986-87 16,157.89 5.37 16,152.52
Further income has been received subsequent to 30 June 1987 and as at 10 July 1989 Mr Gridiger held $75,964.02 on account of capital and $99,875.05 on account of income attributable to the one fourth share the subject of cl. 18(b).
The first question for decision is whether the provisions of cl. 18(b) created a trust enforceable against Mr Gridiger, and if so, by whom it was enforceable.
It was submitted by counsel for Mr Gridiger that in so far as it dealt with the payment of school fees, cl. 18(b) purported to create a trust for a non-charitable purpose, lacking any human beneficiary. Reference was made to
Leahy v. Attorney-General (N.S.W.) (1955) A.C. 457 at pp. 478-479;
Re Denley (1969) 1 Ch. 373; and
Tidex & Anor v. Trustees Executors & Agency Co. Ltd. & Ors (1971) 2 N.S.W.L.R. 453. I reject this submission. In my opinion the trust did not lack human beneficiaries. The beneficiaries were the children of Dr Sacks, and the trust was enforceable by them. Although Dr Sacks himself obtained some practical benefit from the existence of the trust in having his children's school fees paid by the estate, that was a derivative and incidental benefit which in my view would not give him the status of a beneficiary in the technical sense. If, for example, immediately after the death of the deceased, Dr Sacks were to have died or in some other way ceased to have responsibility for his children's education, the trust would have remained in full force and effect for the benefit of the children.
There are many illustrations of the proposition that where a trustee is directed to apply funds in a particular way which directly benefits a particular person, that person is a beneficiary (and may enforce the trust). Reference may be made to
Martin v. Cooke (1800) 5 Ves. Jun. 461; 31 E.R. 682 (a direction to executors to pay £100 ``for the board and education of [a named child] until he shall be fit to be put out apprentice'' and to pay a further sum of £100 ``with him as an apprentice fee''); Noel v. Jones (1848) 16 Sim. 309; 60 E.R. 893 (a bequest of personal estate to trustees in trust inter alia ``to pay and apply the sum of £800 in and upon the education of [a named child]'');
Re Sanderson (1857) 3 K. & J. 497; 69 E.R. 1206 (a gift of an estate to trustees upon trust every year during the life of a named incompetent person ``to pay and apply the whole or any part of the rents issues and profits... for and towards his maintenance, attendance and comfort'');
Presant v. Godwin (1860) 1 Sw. & Tr. 544; 164 E.R. 852 (a direction that the residuary estate be ``placed in proper securities and appropriated to the education of [specified children]... as shall seem most meet and beneficial to them'' by the executors); and
Re O'Rourke (1920) V.L.R. 546 (a gift of an estate to a trustee in trust ``to place [a named child] in a Roman Catholic institution in Victoria for the maintenance and education of children and to pay to the said institution the sum of thirteen pounds per
ATC 4303annum for the maintenance and education of [the child] out of my said estate''). The recognition of a similar principle in other contexts may be observed in
Lockhart v. Hardy (1846) 9 Beav. 379; 50 E.R. 389;
Lonsdale v. Berchtold (1857) 3 K. & J. 185; 69 E.R. 1074;
Re Skinner (1860) 1 J. & H. 102; 70 E.R. 679; and
Re Bowes (1896) 1 Ch. 507. In
Perpetual Trustee Co. v. Hindmarsh (1988) 48 N.S.W.S.R. 454, to which I was referred, a direction to a trustee to ``retain out of the income from my residuary estate the sum of... £100 per annum for the education and maintenance of [a named child] as a boarder at St Ignatius College Riverview...'' failed because attendance at the named school was held to be a condition of the gift which was not fulfilled, but not because the named child was not a beneficiary under the trust.
The next question for determination is whether the trust was rendered unenforceable by reason of the payment of the school fees in question by Dr Sacks. In my opinion, on the true construction of cl. 18(b), it was not essential to the execution of the trust that there be a direct payment by the trustee to the schools in question. In the nature of things, it might not be certain at the due time for payment of particular school fees whether the relevant income would be sufficient to pay them, and it might in any event be inconvenient for the purposes of administration to provide cash at that particular time. As a matter of administrative convenience it was clearly within the competence of the trustee to have the fees paid when they fell due by Dr Sacks, in mutual contemplation that, to the extent that there would be income available for that purpose, Dr Sacks would be reimbursed. This in my view is what happened, and it is impossible to conclude that payment of the fees to the schools by Dr Sacks relieved the trustee from any obligation in the matter. Since the trustee could not, after payment by Dr Sacks, himself make a direct payment to the schools, he was obliged to perform the trust by reimbursing Dr Sacks for such payments to the extent of the available income.
There are other arguable possibilities, none of which would provide any comfort to Mr Gridiger. One is that Dr Sacks is entitled to recover the amount of the fees from Mr Gridiger as moneys paid by Dr Sacks for Mr Gridiger at his request. Another is that performance of the trust in favour of the children in the particular manner directed by the will having become impossible, the children are themselves entitled to receive payment of the amount of the fees which the trustee was directed by the will to pay for their benefit (see the authorities earlier cited).
In my opinion, Mr Gridiger as trustee, at the suit of the children as beneficiaries, is obliged to perform the trust by reimbursing Dr Sacks in respect of fees paid by him to the extent of income available for that purpose in accordance with cl. 18(b).
The next question for determination is whether school fees incurred in any one financial year are payable solely out of income for that year, or whether a deficiency of income in any one year to meet school fees incurred in that year is to be made up out of surplus income of other years, and if so whether there is some cut-off date beyond which further income is not available to make up previous deficiencies.
As Romer L.J. said in
Re Coller (1939) Ch. 277 at p. 281 in relation to analogous questions concerning funds available for payment of annuities:
``The question is always one of the proper construction of the instrument... and must accordingly depend in every case upon the precise language employed. No one case, therefore, can be said to govern another. There are, however, certain principles of construction applicable to such cases that seem to be well established.''
Later in the same judgment (at pp. 281-282) his Lordship considers:
``the case of a trust to pay an annuity out of the income of a trust fund without any subsequent indication being given that the annuity is in any case to be paid in full, and without any express words confining the annuity for any one year to the income of that year. Under such a trust the annuity is prima facie a continuing charge upon the income of the fund, and the annuitant, or his legal personal representatives after his death, will be entitled to have the income impounded until all arrears of the annuity are paid. Sometimes, indeed, this right only extends to the income arising during a limited period such as, for instance, the annuitant's life. This is the case when a trust
ATC 4304is expressed to take effect at the expiration of that period in terms that show that the whole trust fund both capital and future income is, at that moment, to go over to another person intact. But in the absence of any such indication the right to have the income applied in satisfaction of the arrears will continue until the arrears are satisfied. But what is to happen to the surplus remaining in any year after the annuity and all arrears up to that time have been satisfied? I cannot think that the answer to this question admits of any doubt. Where any property is charged with or is subject to a trust for payment of an annuity the annuitant is entitled to demand and can, by taking the appropriate steps, ensure that every part of that property is made available for payment of the annuity, and the right of the annuitant must prevail whatever may be the nature of the property that is charged or is the subject matter of the trust. Where, therefore, the property in question is the income of a fund, the annuitant is in strictness entitled to require that the surplus income in any year, after keeping down the current instalments of the annuity and any existing arrears, shall... be accumulated for the purpose of meeting subsequent instalments. If this be the right, as I think it is, of an annuitant whose annuity is a continuing charge upon the income of a fund until paid in full, any directions in the instrument creating the annuity that are inconsistent with that right indicate that the annuity is not meant to be so charged. This will be the case whenever the instrument provides that any surplus income in any year after the current instalment of the annuity is to be paid to or applied for the benefit of other persons.''
Re Rose 113 L.T. 142 at p. 144;
Executor Trustee & Agency Co. of South Australia Ltd. v. D.F.C. of T. (1940) 64 C.L.R. 413 at p. 420; and
Thomas & Anor v. Perpetual Trustee Co. Ltd. & Ors (1955) 94 C.L.R. 537 at pp. 548-549.)
In the present case, although there is a gift over of ``the residue of the income'' after payment of the school fees, there is nothing to suggest that the residue so given is to be given or indeed ascertained in each year. The recipients of the residue of the income are identical with the ultimate recipients of capital. However, the gift of capital ``in the event that [which I interpret to mean `when'] the children... cease to attend school'' is a sufficient indication that no income accruing after that event is to be available for the payment of school fees.
Accordingly, applying by analogy the principles of construction as expounded by Romer L.J., it is my opinion that any deficiency of income in any one year for the payment of school fees incurred in that year is to be made up from income of other years up to but not beyond the time when both children have ceased to attend school.
It follows that subject to one matter, the children of Dr Sacks are entitled to an order requiring Mr Gridiger as trustee to reimburse to Dr Sacks the respective amounts of the school tuition fees (incurred since the testatrix's death) paid by him, other than those for which he has already received reimbursement from the estate.
The qualification refers to an argument put on behalf of Mr Gridiger to the effect that notwithstanding that the one fourth share of the estate the subject of cl. 18(b) provided a net income between the testatrix's death and the time when both children had ceased to attend school well in excess of the amounts required for their school tuition fees during that period, it was possible (a) that Mr Gridiger as trustee might be liable for income tax in respect of that income under sec. 99A of the Income Tax Assessment Act 1936 which with possible additional tax might deplete the amount of that income available for distribution to less than the amount of the unreimbursed school tuition fees, and (b) that it might be proper for Mr Gridiger to charge against that income certain costs of administration, particularly his own professional charges for time spent in administration of the trusts. Neither of these possibilities was adverted to prior to the trial of these proceedings and in my view no such argument is available to Mr Gridiger on the pleadings either as they stood at the commencement of the hearing or in their ultimate form.
I would, however, add, since some considerable time was spent on the subject in submissions from counsel for Mr Gridiger, that in any event there is in my view no substance in either suggestion. The share of the income of
ATC 4305the relevant one fourth share in each financial year which should have been applied in payment of the respective children's school tuition fees was in my opinion income to which the respective children as beneficiaries of the estate were ``presently entitled'' within the meaning of sec. 98 of the Income Tax Assessment Act 1936. In
F.C. of T. v. Whiting & Ors (1942-1943) 68 C.L.R. 199 it was said (at p. 215) that ``when the Act speaks of a beneficiary being presently entitled to a share in income, it refers to the right of a beneficiary to obtain immediate payment, rather than to the fact that a beneficiary has a vested interest'', and in
Taylor & Anor v. F.C. of T. 70 ATC 4026; (1970) 119 C.L.R. 444 it was said (at ATC p. 4030; C.L.R. p. 452) that ```presently entitled' refers to an interest in possession in an amount of income that is legally ready for distribution so that the beneficiary would have a right to obtain payment of it if he were not under a disability'' (and see
F.C. of T. v. Totledge Pty. Ltd. 82 ATC 4168 at pp. 4175-4176; (1982) 40 A.L.R. 385 at pp. 395-396). In each of these cases the relevant trust involved payment direct to the beneficiary. It would be wrong to treat these formulations as excluding from the operation of the expression ``presently entitled'' a case where the relevant entitlement under the trust was to have a payment made not directly to the beneficiary but otherwise for his benefit. The provisions of sec. 101 corroborate the view that it is immaterial for the purposes of considering whether a beneficiary is ``presently entitled'' to a share of income, to distinguish between the beneficiary's right to have a payment made to himself on the one hand and his right to have a payment made for his benefit, on the other. It was not suggested that any tax liability under sec. 98 would affect the matter.
So far as possible legal or other administration costs are concerned, there is no foundation in the evidence or otherwise for any suggestion that they would be payable out of income rather than capital.
The first and second plaintiffs are therefore entitled to an order that Mr Gridiger as trustee of the estate of the testatrix pay to Dr Sacks the amount of $28,629, together with interest. Questions arise as to the rate of interest which should be paid, and the date or dates from which it should be paid on particular amounts. It is reasonable to suppose that moneys which should have been paid to Dr Sacks but were retained in the estate were in fact invested at substantially higher rates of interest than the 8% per annum prescribed for the purpose of sec. 84A(1) of the Wills Probate and Administration Act 1898. The Court is empowered by that section to order a rate different from that prescribed. In view of the delays which have occurred to date in the administration of the trusts in question, the relatively small amounts involved, and the complexities which would be presented by any requirement for detailed calculations, it is in my view inappropriate to take any course, such as a Master's inquiry, which would involve further delay and legal costs. Rather, in the interests of the expeditious resolution of the matter in accordance with the broad requirements of justice as between the parties, I propose to order that there be added to the sum of $28,629 interest at the rate of 15% per annum from 1 September 1986 to today's date (12 April 1990), an amount of $11,224. Interest after today's date will be governed by sec. 95 of the Supreme Court Act 1970 and payable by Mr Gridiger without recourse to the assets of the estate, unless within 35 days from today's date there is paid to Dr Sacks the amount of $39,853 plus interest at 15% per annum on $28,629 from 13 April 1990 to the date of payment (both dates inclusive), in which event no further interest will be payable. Mr Gridiger may apply to extend the 35-day period if by reason of the state of investment of relevant assets it is not reasonably practicable to make the payment within that time.
[ CCH Note: His Honour then delivered his judgment in proceedings No. 1380 of 1988, in which the trustee sought various declarations concerning the construction of the will, in particular a clause authorising the trustee, being a solicitor, to charge professional fees for work done in connection with administering the testatrix's estate.]