LUTHERAN CHURCH OF AUSTRALIA SOUTH AUSTRALIA DISTRICT INCORPORATED v FARMERS' CO-OPERATIVE EXECUTORS AND TRUSTEES LTD

121 CLR 628

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(Judgment by: BARWICK CJ)

Between: LUTHERAN CHURCH OF AUSTRALIA SOUTH AUSTRALIA DISTRICT INCORPORATED
And: FARMERS' CO-OPERATIVE EXECUTORS AND TRUSTEES LTD

Court:

Judges:
Barwick CJMcTiernan J
Menzies J
Windeyer J

Subject References:
Succession
Wills
Gift of 'Commonwealth bonds'
Delegation of testamentary power
Transfer of property to named charity
Validity

Judgment date: 1 May 1970

SYDNEY

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Judgment by:
BARWICK CJ

This is an appeal from an order of the Supreme Court of South Australia declaring the construction in certain respects of the will of Phillipa Stapleton formerly of 316 South Terrace, Adelaide. The deceased made her own will in the following terms:

"I revoke all other Will made by me and I appoint Farmers Co-Operative Executors and Trustee Adelaide S.A. whose registered office is situated at No. 11-13 Bentham St. Adelaide.

1.

I desire that my remains be cremated and laid to rest in the Soldiers Cemetery Springbank.

2.

I bequeath a pecuniary legacy of Two Thousand Dollars (2,000) to my Niece Margaret Evelyn Marsh of No. 10 Bentley St. Surrey Hills, Victoria.

3.

I bequeath a pecuniary legacy of $600 to my brother Walter Roland Marsh of Mary St. (No. 64) Unley.

3.

I bequeath a pecuniary legacy to Catherine Doreen Marsh (my Sister) of $600.

4.

I bequeath All my Commonwealth Bonds to Frank John Stapleton of 590 Cross Rd., Plymton S.A.

5.

I bequeath a pecuniary legacy of Six Hundred Dollars each to David Bryce Stapleton and Richard Leigh Stapleton.

6.

My Trustees have discretionary power to transfer any morgages, and property, and Shares in Companies invested in my name to the Lutheran Mission 20 Marborough St. St. Peters, S.A. for building Homes for Aged Blind Pensioners after All expenses paid, and I desire that there shall be no subsequent adjustment or apportionment therefore between any of the beneficiaries under my Will."

Two principal questions arose before the Chief Justice of South Australia upon the originating summons taken out by the respondent Farmers' Co-operative Executors and Trustees Limited for the construction of the will. The first question was whether or not Commonwealth inscribed stock for a face value of $12,500 was included in the bequest of "all my Commonwealth Bonds" to the respondent Frank John Stapleton. The second question was "whether the provisions of cl. 6 create a valid disposition or constitute a valid charitable trust or are void for uncertainty". An allied question asked was "whether the provisions of cl. 6 give the trustee a discretion limited to the time of payment or some other and what discretion".

The learned Chief Justice answered the first question in the affirmative and with respect to the second question declared that the provisions of cl. 6 do not create a valid disposition and that the testatrix died intestate as to the whole of her residual estate.

I have had the advantage of reading the reasons for judgment prepared in this appeal by my brothers McTiernan and Menzies jointly and those prepared by my brother Windeyer. I agree with all my brethren that the Chief Justice was right in the answer which he gave with respect to the bequest of the Commonwealth bonds. I also agree with my brother Windeyer that the evidence tendered before the Chief Justice as to the usage by the deceased of the word "bonds" to include her holdings in Commonwealth loans was admissible and I would wish to add nothing to his Honour's reasons for so thinking.

However, I am unable to agree with the Chief Justice's view that cl. 6 of the will is void for uncertainty and that there is necessarily an intestacy. In my opinion, cl. 6 validly creates a special dispositive power, namely, a discretionary power to appoint the residuary estate, or perhaps any part of it, to the Lutheran Church of Australia South Australia District Incorporated for charitable purposes.

The power of testamentary disposition given by s. 4 (1) of the Wills Act, 1936 (S.A.) is to devise, bequeath or dispose of property by a duly executed will. The exercise of the power involves the testator in himself making the disposition of his property in or by his will. As it has been said: "He cannot leave the disposal of his estate to others." But, as Lord Hardwicke said in Cook v Duckenfield, ^[F1] at p. 739]: "... as has been truly said, a man may dispose of his estate by an actual disposition himself, or by empowering other persons to dispose of it, which equally disinherits the heir at law." Thus the creation by will of a general or special power of appointment constitutes relevantly a disposition of the property the subject of the power. Such powers, unless they be powers in the nature of a trust-being powers, necessarily involve a discretion whether or not to exercise the power. Some powers, in addition, may involve a discretion in the choice of the appointees. But to be validly created, the subject matter which can be appointed must be certain, even though there may be room for the donee of the power to choose which property within the certainly described properties he will appoint. Further, except in the case of charity, the possible appointees must be nominated by the testator with sufficient certainty. It is with respect to the last requisite that most of the decided cases have dealt. No such case has turned upon, what in my opinion is radical to the nature of a power of appointment not in the nature of a trust, namely the inherent discretion of the donee of the power to appoint or not to appoint.

In Houston v Burns ^[F2] Viscount Haldane offered an explanation of the treatment by the law of the creation of a power of appointment as a disposition which defeats the claims of persons who would be entitled on intestacy. The case confirmed a long course of decision that "on the one hand the validity of a bequest for such charitable purposes as an individual should select and on the other hand the invalidity of a similar bequest for such public purposes as an individual should select". The particular will then under consideration left property "for such public, benevolent or charitable purposes in connection with" a named parish or neighbourhood. The words were read disjunctively and the gift, because of that construction, was held to be void.

But though unnecessary to the decision, his Lordship in contrasting the position of a power to appoint to charity with other powers of appointment said of the testator: ^[F3]

"He cannot leave it to another person to make such a disposition for him" (i.e. a complete disposition of the beneficial interest) "unless he has passed the beneficial interest to that person to dispose of as his own. He may, indeed, provide that a special class of persons or of institutions invested by law with the capacity of persons to hold property are to take in such shares as a third person may determine, but that is only because he has disposed of the beneficial interest in favour of that class as his beneficiaries."

This view, the question of charity apart, would confine the creation of powers of appointment which could be regarded as testamentary dispositions to powers in the nature of a trust and to powers to appoint amongst a class, where it could be concluded from the terms of the will that the class obtained by the will a beneficial interest in the property the subject of the power. If this were the exclusive explanation of the validity of a power of appointment created by will, a power to appoint amongst a class with a gift over in default of appointment would seem to be excluded because the presence of the gift over denies the existence of a beneficial interest in the class. It may be that Sargant J. took this limited view of the creation of a power of appointment as a relevant disposition when he expressed the exceptions to the general rule that the testator must himself make his testamentary dispositions. In Re Hughes; Hughes v Footner, ^[F4] at p. 212 his Lordship said:

"The general law on the subject is well settled, and is that the power of testamentary disposition is essentially a personal one and cannot be exercised by a will merely purporting to delegate to another the distribution of the testator's estate and the ascertainment of the objects of his bounty. But there are some real or apparent exceptions to or qualifications of this general rule. One is that of the creation of a general power which the donee may exercise for his own benefit, for such a power is equivalent to property. Another is that of the creation of a power of distribution amongst charities. A third is that of the creation of a power of selection amongst individuals or a class of individuals who are pointed out as the beneficiaries: see Houston v Burns." ^[F5]

This Court had occasion to consider the theoretical basis for the treatment of the creation of a power of appointment as a testamentary disposition in Tatham v Huxtable. ^[F6] Fullagar J. says: ^[F7]

"It seems quite consistent with legal principle to say that the creation by will of a general power of appointment (which has been said to confer the equivalent of ownership) is a testamentary disposition of property. It also seems consistent with legal principle to say the same of the creation of a special power of appointment among a class, where the class is described with certainty and (as in the normal case) there is, unless and until the power is exercised, a trust for the class or for persons who are to take in default of appointment. Where there is, as a matter of construction, no such trust, there does seem to be a departure from principle if we say that the creation by will of a special power to appoint among a class is a testamentary disposition of property, but to say so represents a natural enough `latitude' of view, which is perhaps characteristic of a system which has never regarded strict logic as its sole inspiration. Unless, however, there is a class designated with certainty, to say that the creation of a power to select beneficiaries amounts to a testamentary disposition of property is not merely to relax the principle to meet an exceptional case but to deny the principle absolutely."

It is not quite clear to my mind what Viscount Haldane meant in his speech in Houston v Burns ^[F8] by the expression "unless he has passed the beneficial interest to that person to dispose of as his own". Quite clearly, provided the property is specified and the beneficiary or beneficiaries identified or identifiable, the power to appoint can be given to a person who has no interest legal or equitable in the subject property. It may be he was referring only to a general power where the donee of the power was to appoint to himself as well as decide whether or not any gift should be made by an exercise of the power. Further, though prior to the decision of Houston v Burns ^[F9] the decided cases may not have included any instance of a power of appointment amongst a class which did not itself obtain a beneficial interest under the will creating the power, it would seem to me that later cases may indicate that his Lordship's explanation, if intended to be exhaustive, may not be wholly acceptable.

The present case, apart from the fact that the purpose of the power is charitable, raises the question whether a power to appoint to a specified person who otherwise than by an exercise of the power receives no beneficial interest in the property the subject of the power is validly created by will.

To consider the validity of the creation of the power in cl. 6 of the will, it must be assumed that no beneficial interest in any part of the residuary estate is created by the will itself in the trustee or in the person named as the object of the power. The testatrix has decided who the beneficiary of the described property may be.

There is thus no uncertainty as to the beneficiary to whom the trustee may appoint the property. Difficulties which arose in such cases as In re Park; Public Trustee v Armstrong ^[F10] and In re Jones; Public Trustee v Jones ^[F11] do not arise. Indeed, there are, in my opinion, no actual uncertainties involved in the matter at all. The identity of the trustee who is to be the repository of the power is quite clear, the property over which the power extends is quite certain, though it may be that the trustee has a discretion as to whether he will appoint the whole or only part thereof; and the object of the power both in the identity of the donee and in the charitable purpose to be served is certain. Consequently the case is also quite unlike Tatham v Huxtable ^[F12] where the majority thought the provision in the will there under discussion uncertain because the will provided no definite criteria for the ascertainment of the intended beneficiaries. The same may be said in relation to Houston v Burns, ^[F13] and other cases in which gifts have failed for uncertainty in the identity of the intended object of the power.

Generally speaking, the will creating a special power of appointment upon its proper construction will have created a beneficial interest in the objects of the power in the property subject to it. But there may be a gift over in default of the exercise of the power. I have found no case in which the existence of the gift over has invalidated the creation of the power. That circumstance tends to indicate to me that provided the other certainties are present the absence of a beneficial interest created by the will in the objects of the power of appointment otherwise than by its exercise is not fatal to the validity of the power. When the property passes by virtue of an exercise of the power of appointment it does so as from the testator and not as from the donee of the power. This is a further circumstance which makes it difficult for me to accept the expression of opinion by Viscount Haldane to which I have referred as of universal validity. The view that a power may be valid, though no beneficial estate is otherwise given to the members of the class amongst whom the appointment may be made, can also be derived from In re Weekes' Settlement ^[F14] and In re Combe; Combe v Combe. ^[F15] In neither of these cases, one of which involved a power created by a settlement to appoint amongst a class and the other a similar power created by a will, was the validity of the power to appoint questioned though it was decided in each case that the class did not have any beneficial interest under the will apart from an exercise of the power of appointment. In neither case was there a gift over. Indeed, the judgments in each case seem to assume that an exercise of the power would have validly created beneficial interests in the appointees who otherwise had no beneficial interest derived from the instrument creating the power. Also Fullagar J. in the quotation I have made from his judgment in Tatham v Huxtable ^[F16] appeared ready to concede the validity of a testamentary power to appoint amongst a class to which no beneficial interest had been given by the will itself. In Bristow v Skirrow, ^[F17] the provision in the will of Sir John Chetwode namely, "to the same uses, upon the same trusts, and to and for the same intents and purposes as his (the testator's) wife might have declared, or should thereafter declare, with respect to the disposition of her residuary personal estate" ^[F18] and in default, ultimately for the next of kin of the testator, did not seem to Lord Romilly to be invalid. It was held in that case that in default of provision by the wife for the disposition of her residuary personal estate the property passed to the next of kin of the testator and not under the general residuary estate of his wife.

For myself, I am of opinion that a bare power to appoint amongst a class, no member of which derives any beneficial interest under the will in the property the subject matter of the power, is a valid "disposition" or its equivalent for the purpose of the Wills Act. Such a power as was the subject of decision in In re Combe; Combe v Combe ^[F19] could be described as a discretionary power as in that case there was no obligation to exercise it. Thus a discretionary power to appoint amongst an identified or identifiable class the whole or any part of a residuary estate, in my opinion, would be validly created though the will itself created no beneficial interest in any part of the residuary estate in the class. Indeed, as I have indicated, except in the case of a power in the nature of the trust, it is of the essence of the power of appointment that it is discretionary.

I am unable to find any reason why a discretionary power to appoint to a named person should be in any worse case than such a discretionary power to appoint amongst a named class to whom no gift is made by the will. It does not involve, in my opinion, any uncertainty which could lead to the conclusion that for that reason it is void. It seems to me to satisfy the requirements of the Wills Act and the principle which has been derived from it that the testator should have identified the property and the person to whom he empowers his trustee to give it. A discretion vested in the trustee as to whether or not the gift is to be made does not amount, in my opinion, to allowing the trustee to make his will for him. The grant of such a power is a sufficient disposition for the purposes of the Act and should be regarded for relevant purposes as a disposition. In my opinion, therefore, the power to appoint the whole or any part of the residuary estate to the appellant is validly created by cl. 6. That the purposes to which the object of the power is to devote the property if appointed to it are charitable certainly does not require any contrary decision. Indeed, the fact that the object of the power is clearly charitable is, in my opinion, in itself a ground for holding the creation of the power to be valid. I shall return to this aspect in a moment.

It was said in argument that the absence of a gift over in default of appointment rendered the attempted creation of the power void. The reason for this I find difficult to comprehend. Had the deceased added to cl. 6 the words "and in default of appointment, I give the whole of my residuary estate to my next of kin", it would seem to be conceded by this branch of the respondents' argument, and I would think, rightly conceded, that the power would have been validly created. But it is said that because the consequence of intestacy could only follow by operation of law upon the non-exercise of the power, the power is not validly created. I cannot think this a significant distinction. However important in some testamentary instruments the absence of a gift over may be in assisting a conclusion that a gift to the objects of a power should be implied, the absence of a gift over in this will, in my opinion, does not bear at all on the question whether the power of appointment itself is validly created by the will.

As I think the power validly created, it follows that if the power is exercised, the property comprised in its exercise will pass beneficially to the appellant for the charitable purposes specified in the will. However, it was argued by the appellant that there was a gift by the will itself to the appellant for the stated charitable purposes. It is quite clear that there are no express words of gift in favour of the appellant. But two possibilities remain and each was relied upon by the appellant as supporting the conclusion that there was a gift by the will itself. First, it was said that the special dispositive power given to the trustee by cl. 6 was a power in the nature of a trust, so that the trustee is bound to exercise it. Secondly, it was said there is a gift by implication for the execution of which the discretionary power to transfer specific property is given.

After due consideration, and with respect to those who hold a contrary opinion, I have reached the conclusion that there is no obligation upon the trustee to exercise the power given by cl. 6. The qualification of the power by the word "discretionary" seems to me to tell too heavily against the existence of any such obligation. I quite realize that in construing the will, we are to find the deceased's intention as expressed in her words in the will. The construction should be approached without any preconceptions in an endeavour to find in the language used the intention of the testatrix. In using the word "discretionary" she has used a word, the full import of which she may not have comprehended but which has a meaning in ordinary parlance. I can find no other meaning for the word, even as used by the deceased, than its ordinary meaning. That meaning to my mind denies the existence of the suggested obligation to exercise the power. As I mention later, I do not think that the word can be satisfied by confining its operation to the selection of particular property for transfer, or to the preference for transfer of property in specie rather than of realized proceeds or to some matter of timing in handing over the assets. Nor am I able to conclude that the power is in the nature of a trust from the existence of which a gift to the object of the power might be implied.

Then, can the grant of the power itself imply the existence of a gift, the purpose of the power being the execution of the implied gift by the transfer of the property given? There seems to me to be much in the way of such a construction. In the first place, there is a question whether all the property the subject of the power is necessarily to be transferred if any appointment is made. Although not free of ambiguity, I am of opinion that the clause should be construed so that the subject matter of the power is all the mortgages, etc. remaining after all expenses have been paid. But, I concede the force of the view that the clause means to give the trustee power to appoint any, as distinct from all, the mortgages, etc. Secondly, the power could only be regarded as an intended means of executing an implied gift of the residuary estate by limiting the discretion of the trustee to the choice between a transfer in specie and a transfer of proceeds and to the timing of the transfer. But, in my opinion, the discretion cannot be so confined. It qualifies the nature of the power itself. The discretion extends to the decision whether or not the power is to be exercised. There is, in my opinion, no gift by the will to the appellant.

I now return to express my reasons for thinking that because the object of the power is charitable the power of appointment for that reason alone is validly created. We are not concerned here with any question whether the will exhibits a general charitable intention. There is no suggestion that the specific charitable purpose named by the testator is incapable of execution. It is nominated, as I have said, with certainty. The intended trustee to effect the charitable purpose is specifically named and would appear to have an existence in the law. But even if it had not, there would be no necessity to search for a general charitable intention. If the trustee should exercise the dispositive power which the clause gives it, equity will see that the execution of the trust thus created does not fail at any time for want of a trustee to carry out the charitable work. Further, whilst the power is not in the nature of a trust so that the trustee must exercise it, equity would ensure that the trustee bona fide considers whether or not the power should be exercised, and that in doing so, proper considerations are in mind, and improper considerations excluded. The discretionary nature of the power does not mean that the discretion is absolute, in the sense that it can be exercised irresponsibly, capriciously or wantonly. The object of the power being a charity, though the power is not in the nature of a trust, would at least increase the Court's vigilance and probably narrow the area of the considerations which the trustee could properly entertain in deciding whether or not to exercise the power.

But the question remains whether merely because the object of the special power is charitable, the power purported to be given by cl. 6 is validly created. In the list of exceptions aggregated by Sargant J. in the passage I have quoted "is the creation of a power of distribution among charities". See also for example Houston v Burns. ^[F20] The exception must be wide enough to cover the power to appoint amongst charities which, though identified by the testator, receive no beneficial interest directly from his will in any of the property the subject of the power of appointment. This matter is discussed in a number of authorities but most clearly, and for the courts of Great Britain, most authoritatively, in Chichester Diocesan Fund and Board of Finance (Inc.) v Simpson (Diplock's Case). ^[F21] All their Lordships acknowledged that a charitable purpose in the testator's provision in his will created an exception from the fundamental rule that a "testator must by the terms of his will himself dispose of the property with which he proposes to deal". Lord Simonds says: ^[F22]

"It is a cardinal rule, common to English and to Scots law, that a man may not delegate his testamentary power. To him the law gives the right to dispose of his estate in favour of ascertained or ascertainable persons. He does not exercise that right if in effect he empowers his executors to say what persons or objects are to be his beneficiaries. To this salutary rule there is a single exception. A testator may validly leave it to his executors to determine what charitable objects shall benefit, so long as charitable and no other objects may benefit."

Again, as in the case of other powers of appointment, the grant or creation of the power may include the ability to exercise or not to exercise the power. It may be that if a general charitable intention is present, the Court would ensure that charity in some form receives the property in question. But a power to devote the property to such a charitable purpose as the trustee may choose followed by a provision that in default of any appointment or to the extent to which any appointment shall not extend the property shall go to the next of kin would be a valid power of appointment. In such a case the trustee would decide whether or not there should be a charitable gift as well as who should receive the property if it was decided to make the gift.

It is notable that in Chichester Diocesan Fund and Board of Finance (Inc.) v Simpson ^[F23] the power to appoint to a charitable purpose of the appointee's choice was involved. It was supported, as my quotation shows, merely because of the evident charitable purpose of the testator. A power to appoint to a named charity of the testator's choice must, in my opinion, be a fortiori .

It thus appears to me that, with due respect to those who entertain a different view, the problem posed by the language of cl. 6 of this will is not answered merely by concluding that no complete gift to the appellant was effected by the will itself. So much being granted, the question remains whether the power given to the trustees was validly given as a special dispositive power, the exercise of which by the trustee would be enforced by a court of equity.

In my opinion, for both the reasons I have given, such a power was validly given by the will. Although the questions of the originating summons are, perhaps, not artistically expressed, questions 2 and 3, in my opinion, do sufficiently raise the question whether the power is valid. There should be an answer to those questions declaring that the power given to the trustee is valid and that it is not void for uncertainty or for any other reason.