Pearce v Wright [1926] HCA 41; (1926) 39 CLR 16 (11 November 1926)

HIGH COURT OF AUSTRALIA

Pearce Plaintiff, Appellant; and Wright and Others Defendants, Respondents.

H C of A

11 November 1926

Knox C.J., Isaacs and Higgins JJ.

Dudley Williams (Teece K.C. with him), for the appellant.

Hammond K.C. (with him McDonald), for the respondents Horace Gilbert Wright and Florence Emily Boulton Garvan.

Knox C.J.

I think that the learned Judge came to the right conclusion in this case. The material words of the will are "I hereby give and devise one-sixth of my said half interest in the said land to the said Horace Gilbert Wright and one-sixth of my said half interest in the said land to the said Florence Emily Boulton Wright and the remaining four-sixths of my half interest in the said land to the said Louisa Eliza Jane Pearce and I declare that the said gift and devise of my half interest in the said lands shall be subject to the payment by my said son and daughters to my said wife during her life of the sum of two hundred and fifty pounds per annum payable by monthly instalments." The words of that declaration to my mind clearly make the annuity a charge on the half interest in the land. That being so, the son and the two daughters only take the half interest given to them subject to that charge. They get nothing beneficially out of the rents and profits of the land until the annuity is satisfied. If they receive between them more than enough to satisfy the annuity, their first duty is to pay the annuity and then they may divide the balance between themselves in proportion to their shares of the half-interest in the land. Whether they do it in that way or whether they divide the whole of the rents and profits between themselves and then contribute towards the annuity in proportion to their shares in the half interest does not matter: the result is the same in each case.

I think it would be well to strike out the declaration (a) in the decretal order, because it clearly is not necessary at the present time to decide that question. We express no opinion upon it but leave it open to be decided, if necessary, at some future time. The only contest at present is in what proportions the parties are liable as between themselves to contribute to the annuity. That can be settled by the answers to the other questions. I think also that declaration (b) should be altered by striking out the words "the interests given to the plaintiff and the said two defendants in," and that the further declaration should be altered so as to read: "This Court doth further declare that as between the plaintiff and the said two defendants the annuity is payable in proportion to their respective shares in the half interest devised to them by the said will." Otherwise the decretal order should be affirmed.

Isaacs J.

I agree.

Higgins J.

Mr. Williams has done all, I think, that could be done for his client; but the order dismissing the appeal, as proposed by the Chief Justice, must be made.

The judgment of the learned primary Judge is, in my opinion, right as to the vital question—that the annuity is a charge upon the whole of the half interest devised, and, as the shares of the beneficiaries in that half interest are unequal, it necessarily follows that the incidence of the annuity must be unequal, in the same proportions.

There are two steps:—(1) The devise of the half interest, the property devised itself, is "subject to the payment by my said son and daughters" of the annuity. The words "subject to" are words which are normally and ordinarily used to create a charge on property. If authority is required for this statement it is put as plainly as possible by Lord Cairns in Birch v. Sherratt[1]. The question usually arises as between corpus and income; but that case has been followed, under circumstances which are not nearly as strong as in the present case, in In re Howarth[2] and In re Watkins' Settlement; Wills v. Spence[3]. In the latter case Cozens-Hardy M.R. said[4]:—"What does subject thereto mean? As I read the settlement it means subject to the annuity of £400. If that be the true construction, it is absolutely settled by Birch v. Sherratt, which was in no way qualified by the Court of Appeal in In re Boden5(1907) 1 Ch. 132., and which has since been followed by this Court in In re Howarth, that these words subject thereto are not merely referential, but mean subject to the full and complete payment of the annuity, and that the effect of them is to make the annuity a charge on the corpus."

The second step is this: Having ascertained that there is a charge created upon the half interest, the beneficiaries take, not the gross income from the half interest, but the net income after satisfaction of the charge, and they must necessarily suffer in unequal proportions, the proportions in which they are entitled to the devised property.

For instance, if the gross income were £1,000, after payment of the annuity the net income to be divided among the beneficiaries would be £750; and that £750 would be divided between them in the proportions of four-sixths, one-sixth and one-sixth.

I agree in the alterations proposed to be made to the decree.

Decretal order varied as stated in judgment of Knox C.J. Otherwise decretal order affirmed and appeal dismissed. Appellant to pay costs of appeal.

Solicitor for the appellant, Walter Dickson.

Solicitors for the respondents, G. M. Laurence & Son; Walter Dickson.

[1] (1867) L.R. 2 Ch. 644, at p. 648.

[2] (1909) 2 Ch. 19.

[3] (1911) 1 Ch. 1.

[4] (1911) 1 Ch., at p. 4.

[5] (1907) 1 Ch. 132.