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High Court of Australia |
McBRIDE v. HUDSON [1962] HCA 5; (1962) 107 CLR 604
Wills - Settlements
High Court of Australia
Dixon C.J.(1), McTiernan(2), Taylor(3) and Windeyer(4) JJ.
CATCHWORDS
Wills - Construction - Gift of specified number of shares in company - Number specified comprising complete parcel held by testator at date of will - Redivision of capital of company prior to death - Specific or general gift - Ademption - Effect of rule that will to be construed as if executed immediately before death.Settlements - Respective rights of life tenant and remainderman - Pastoral business - Increases in livestock - Whether any livestock should be treated as representing undistributed profits.
HEARING
Adelaide, 1961, September 26, 27;DECISION
1962, February 9.2. The widow of the testator, Hilda McBride, died on 23rd February 1957. During her life the pastoral business had been carried on in pursuance of the provisions of the will and payments on account of income were made regularly to the widow and her son. By her last will, Hilda McBride, the widow of the testator, devised and bequeathed her estate upon trusts which included specific bequests to her daughter, Mary Hudson, and her grand-daughter, Katherine Mary Edwards. The only provisions of the will really material to the summons, however, are these. First, a bequest of the shares expressed as follows: "as to my shares in Elder Smith and Company Limited for such of them my grand-daughters" (proceeding to enumerate them) "living at my death who attain the age of eighteen years and if more than one in equal shares." Second, a direction as to any net profits which the testatrix had not drawn under the provisions of her late husband's will as to the pastoral business during her life-time that she gave and bequeathed them to her son, the appellant, to whom she gave a sum equal to the share of the net profits to which she was or had been entitled since the death of her husband, to be ascertained by reference to the books of account. Third, a devise and bequest of the residue upon trust to pay thereout debts and testamentary expenses and subject thereto to stand possessed of the balance for her son, the appellant, for his own use and benefit absolutely. (at p611)
3. The present appeal relates to two subjects of controversy which arose between the brother and sister, that is to say, between the appellant and the respondent Molly Hudson. The first concerns the shares in Elder Smith & Co. Limited. It appears that when the testator's will was penned and was executed by him he was the holder of 196 shares in Elder Smith & Co. Limited. The capital of that company at the date of the will stood subdivided in a manner that included shares of a denomination of 10 pounds each paid up to 6 pounds. The shares held by the testator were of this description. Before the testator died, the capital of Elder Smith & Co. Limited was re-divided and the shares of the testator were divided into 1,960 shares of 1 pound each paid up to 12/-. Under the advice received by the trustees these shares, that is to say 1,960 1 pound shares were transferred by the executors into the widow's name in pursuance of the bequest in the will. The advice apparently was that the bequest covered 1,960 1 pound shares because they were the product of the 196 10 pounds shares when the will was drawn. The shares were in fact disposed of by the widow after she had made her own will in which she purported to dispose of them by a trust for her grandchildren at the date of her death. The result was, of course, that the bequest for the grandchildren was adeemed. If at her death she still held the proceeds of the shares, the proceeds would fall into residue which would pass to her son, the appellant. The respondent Molly Hudson controverted the view upon which the trustees had acted, namely, that her mother had been entitled to 1,960 1 pound shares under the bequest of 196 shares even although at the date when the will of her father was written the shares were 10 pounds shares. (at p612)
4. The other source of controversy with which this appeal is concerned related to the profits, particularly from livestock during the widow's lifetime or, to state the matter from another point of view, what livestock should be considered capital passing in remainder and what, if any, should be considered to represent accumulated and undistributed profits. This controversy arose from the fact that the pastoral property with which we are concerned was at the time of the testator's death in a rundown condition and, in particular, the sheep pasturing upon it were far less than warranted by its true carrying capacity. In the management of the station after the testator's death flocks were built up, improvements were made and the capacity of the station was increased. It is needless to enter upon the details but the result was that if this was considered to have been done at the expense of the life tenants and the consequence was that the life tenants possessed an unrealized claim to undistributed income, then the amount of corpus passing under the will of the testator to those entitled in remainder would be far diminished. The provisions of the will of the widow already stated meant that her son, the appellant, would take her share of the accumulated income thus represented or indeed anything to which she was entitled from her husband's estate under whatever description it fell. On the other hand, if the improved condition of the station and the increase in the livestock are to be considered an affair of capital, the respondent Molly Hudson, and after her death her children surviving her, took one half-share in remainder thereof under her father's will, the other half-share passing to her brother, the appellant. One purpose of the originating summons issued by the respondent Molly Hudson, was to attack the view of the matter first set out above, namely, that there was an unrealized and undistributed fund of profit to which those representing the life tenants were entitled at the expense of those taking corpus: the summons sought to enforce the view giving the stock and other assets entirely the character of corpus. The questions thus raised under this head have been fully dealt with in the judgment of Taylor J., which I have had the advantage of reading, and I entirely agree with his conclusions and with the reasoning by which the conclusions are supported. (at p613)
5. The question, however, of the disposition of the shares in Elder Smith & Co. Limited I have found much more difficult. If one might lawfully place upon the paragraph of the will bequeathing 196 shares in Elder Smith & Co. Limited to the testator's wife a meaning designating the 196 shares in that company which the testator held at the date of the will, it would not be difficult, beginning with that gift, to treat the subsequent re-subdivision of the capital into 1 pound shares paid up to 12/- as an alteration in denomination and number which did not so change the property in substance as to affect what otherwise would have been the operation of the bequest. Thus where a testator specifically bequeathed shares that he held in a named company and after the date of the will and before the death of the testator the shares in the capital of the company were divided so that in exchange for each of the original shares four new shares were allotted of a quarter of the denomination, Swinfen Eady J. found the "shares bequeathed by the will changed in name and form only, but substantially existing in their sub-divided form and each original share traceable into its four sub-divided shares. The subject-matter of the bequest remains in substance, though changed in name and form. There is therefore no ademption": In re Clifford; Mallam v. McFie (1912) 1 Ch 29, at p 35 . Neville J. went somewhat farther in In re Leeming; Turner v. Leeming (1912) 1 Ch 828 . That testator had bequeathed by his will 10 4 pounds fully paid shares in a company. Before he died the company was reconstructed; a new company was incorporated under the same name and took over the undertaking in exchange for shares distributed by the liquidator to the shareholders. For every 4 pounds share in the old company the testator became the holder of two 5 pounds preference shares and two 5 pounds ordinary shares in the new company. Neville J. said: "I think that the shares in the new company are really in substance the same as the shares in the old company and represent the specific bequest. The subject-matter of the bequest remains, though changed in number and form. . . . . There has been a dissolution of that company and a new company has taken its place, but in substance it is the same company. It seems to me that the amount of the testator's interest in the old company remains and is represented by the shares in the new company and is practically the same, and is changed in name and form only. I think, therefore, that there has been no ademption, and that the legatee is entitled to the shares in the new company." (1912) 1 Ch, at p 830 To the like effect is the later decision of Roxburgh J. in In re O'Brien dec'd.; Little v. O'Brien (1946) 62 TLR 594, at pp 595, 596; (1946) 175 LTR 406, at p 408 . The foregoing, however, is all upon the postulate that the bequest of 196 shares expressed in the will refers to the particular shares the testator then held. But can that postulate be made good? If the question had arisen in England before the Wills Act, 1837 it may be supposed that the ordinary rules governing the interpretation of wills with respect to bequests of personal property would not have been regarded as standing in the way of the conclusion that the 1,960 shares stood in the place of the 196 shares and passed to the beneficiary to whom the latter had been bequeathed. That is because, as I understand it, there was nothing artificial about the principle by which, as the law then stood, a disposition of personal property might, according to its meaning, cover personal property which had been acquired after the will had been made but before the death of the testator. So far as I am aware, it was all a question of ascertaining the meaning of the testator as expressed in the testamentary instrument. See per Jessel M.R. in Bothamley v. Sherson (1875) LR 20 Eq 304, at p 310 . Of course devises stood in a very different position. A fee simple acquired after the date of a will could not be carried by a devise contained in the will. But s. 24 of the Wills Act, 1837, forming one of the provisions directed primarily at the reform of the law relating to disposition of realty by will, was expressed in terms governing both devises of realty and bequests of personalty. Section 24 of the Wills Act, 1837, which is reproduced in s. 27 of the South Australian Wills Act, 1936, in an attempt to bring real property and personal property under an identical rule in this respect, uses language which seems to require an artificial recourse to the death of the testator as the point of time at which the provisions of the will are to be construed. The section provides that every will shall be construed with reference to the real and personal estate comprised in it to speak and take effect as if it had been executed immediately before the death of the testator, unless a contrary intention shall appear by the will. If an instrument is literally and in all relevant respects construed as if it were written at a subsequent date, perhaps a date far removed from actual contemporary circumstances, it needs no argument to show that a strange and artificial meaning may be produced. This was seen by Mr. Jarman who, after explaining the meaning and effect of the provision on realty, made this observation (2nd ed. (1855) p. 269): "The application of the new principle of construction to specific bequests, however, is attended with more difficulty, and will, in all probability, give rise to much controversy and litigation, before its precise limits and effect are fully established." The learned editors of the second edition, one of them being Mr. Wolstenholme, refer (p. 271) to the possibility of two constructions which may be put upon the 24th section, "namely, whether we are first to transfer the date of the will to the day of the death, and then see what property the words refer to; or whether, on the contrary, we are first to see what property the words refer to (remembering that words of general description include in themselves after-acquired property) and then transfer the will to the date of the death. It is obvious that the first construction makes the words include not only a different interest in the same subject, but also a different subject answering the same description, while the latter makes the words include only a different interest in the same subject. The latter is conceived to be the true construction." This distinction does not appear to have been taken up judicially and examined or applied in all the time that has elapsed, but if it represents the law it would bear upon the present case. It would mean that the words of the will are to be read as at the date when the testator wrote them in order to see to what property they refer, remembering that words of general description include in themselves after-acquired property. That having been done, the will so applied would then be transferred to the date of the death of the testator. So considering them, it would appear an obvious inference that the testator was referring specifically to 196 shares which he held. He referred to them in language specifically descriptive of 196 shares as they then existed although he did not, by the use of the word "my" or any other expression, tie them specifically to the very parcel of shares which he held, but there can be no doubt that it was to that parcel he was referring. As a matter of ordinary interpretation it would seem the natural conclusion to draw from the fact that after dealing with the specific bequests, among which he included directions as to those particular shares, he goes on to speak of the whole of the residue of his estate. It would seem that he was making a specific bequest and not giving a general legacy to be possibly satisfied by the 196 shares in Elder Smith & Co. Limited. For such a general legacy would come out of what otherwise would be the residue, and plainly in his device and bequest of the whole of the residue he is speaking of what remains after the bequests with which he has already specifically dealt. The foregoing approach to the present case finds less justification in the case law that has developed than it does in the views which Mr. Jarman's editors adopted within a few years of the passing of the Act and I have entertained accordingly no little doubt as to the actual conclusion which it is now proper to reach. What seems at present to be the recognized and orthodox approach to such a question is to begin with the hypothesis that, unless a contrary intention can be found in the will, s. 24 requires the construction of the bequest as speaking and taking effect as if it had been executed immediately before the death of the testator. This means, of course, "with reference to the real estate and personal estate comprised in it": not for all purposes. Further, the interpretation of these words adopted by Turner L.J. (as he afterwards became) in Lady Langdale v. Briggs (1856) 8 De G, M & G 391, at p 436 (44 ER 441, at pp 458,459); 26 L.J. Ch. 27, at p. 50. , is applied. They mean that, so far as the will comprises dispositions of real and personal estate, the dispositions are to be construed as speaking and taking effect as if the will had been executed immediately before the death of the testator. But all that operates only "unless a contrary intention shall appear by the will". What, therefore, is to be looked for is the indication of a contrary intention. If the bequest in question is seen to be specific it suffices as an indication of a contrary intention. But there is a traditional leaning to construing a bequest as a general legacy and not a specific legacy and this applies to a bequest of shares as well as to a bequest of stock and bonds. It has been called sometimes a presumption and there are instances where it has not been outweighed by the possession by the testator, at the time when the will was made, of the very quantity named by him, in the bequest, of the securities: cf. Robinson v. Addison [1840] EngR 756; (1840) 2 Beav 515 (48 ER 1281) ; In re Willcocks; Warwick v. Willcocks (1921) 2 Ch 327 ; In re Gage; Crozier v. Gutheridge (1934) Ch 536 . But it is a question of the meaning of the bequest and certainly the circumstance that the quantity of shares or other securities mentioned in the bequest coincides with the quantity then held by the testator must be a factor. "A general legacy has no reference to the actual state of the testator's property. It is a gift of something which, in the event of the testator leaving sufficient assets, must be raised by his executors out of his general personal estate. . . . Whether or not anything forms part of the testator's personal estate is a pure question of fact, but whether or not it has been separated from the personal estate" (scil. so as to be specific) "depends upon the construction of the will which is a question of mixed law and fact or a pure question of law. Provided it has been separated, anything which was the property of the testator at the time of his death is capable of being specifically bequeathed and thus becoming a specific legacy.": Williams on Wills (1952) vol. 1, p. 148. What marks a bequest as specific is that its subject-matter is designated as something that does at the time of the will, or shall at the time of the death of the testator, form an identifiable part of his property and is, so to speak, distinguished by the intention of the testator as ascertained from his will to separate it in his disposition from the rest of his property for the purpose of bequeathing it as the distinct subject of a testamentary disposition. In In re Evans; Evans v. Powell (1909) 1 Ch 784 , Joyce J. in a passage that has since been cited more than once, says: "It is well settled that there may be such a specific description of the subject of a gift as to show that what was intended to pass, whether real or personal estate, was some particular thing in existence at the date of the will." His Lordship distinguishes such a case from a description which is general and he then proceeds: "and where there is such a particularity in the description of the subject of a gift as to show that it was some object in existence at the date of the will that was intended to pass, it is considered that there is sufficient evidence of a contrary intention to exclude the application of the provisions of s. 24" (1909) 1 Ch, at p 786 . (at p617)
6. The difficulty arising here in the operation of this test lies in the "particularity of the description" showing "some object in existence". What is contended is that it describes no more than any 196 shares in Elder Smith & Co. Limited and that all that can be said about the possession by the testator at that date of 196 shares is that, had he died on the following day, they would have satisfied the legacy. For this support is found by the respondent in In re Gillins; Inglis v. Gillins (1909) 1 Ch 345 . There a testator holding 360 shares in the Commercial Union Assurance Company bequeathed by his will to different legatees varying numbers of shares in that company, making a total of 275. After the date of the will and before his death, the shares of the company were re-subdivided into shares of smaller denomination. Warrington J. held the legacies to be general and not specific so that the legatees took only the precise number bequeathed of shares of reduced denomination. Warrington J. so decided on the footing that "the provisions of s. 24 make one read the will as speaking from the death; and therefore a gift of so many shares must be a gift of so many shares as they are found by the executor when he comes to administer the testamentary dispositions of his testator, and must therefore mean so many of the 10s. shares into which the capital of the Commercial Union Assurance Company is now divided" (1909) 1 Ch, at p 353 . It is an important circumstance in that case that the testator was not disposing of all the shares he held, and although the view taken by Warrington J. must carry weight in considering the interpretation of the will in the present case, after all it is the meaning of the testator as expressed in his will that must be sought in each case. In In re Nottage; Jones v. Palmer (No. 2) (1895) 2 Ch 657 a case in which similar questions were decided in favour of the specific nature of the bequests, Rigby L.J. remarked: "You have got a long way towards a specific gift if you come to the conclusion that he (the testator) is trying to describe something which he has" (1895) 2 Ch, at p 664 . Later in his judgment, his Lordship speaks of "expressions in the will which agree better with the hypothesis that the gifts are specific" (1895) 2 Ch, at p 665 . (at p618)
7. For myself I think that although in the present case there is not much context to the gift which is important, nevertheless it all squares with the hypothesis that the gifts are specific and that, to begin with, the inference is unavoidable that when the will speaks of the 196 shares the reference is to something the testator then holds. One is allowed to know that it is the very number he held. The inference arises, I think, from the mere enumeration and description of the shares, but it is supported by the place, namely cl. 3, where the gift is expressed. The structure of the will has already been referred to. It is clear enough that the will is constructed to deal with specific bequests and pecuniary legacies and the vesting of the residue of the estate in trustees, the payment of liabilities and the creation of active trusts. I think that it is a justifiable conclusion that the bequest was specific. (at p619)
8. For all these reasons I think that the appeal should be allowed. I agree in the declarations proposed by Taylor J. (at p619)
McTIERNAN J. In my opinion the decisions which the learned primary judge Brazel J. gave on the questions raised by the notice of appeal are correct. The decision on each question, in my opinion, proceeds from a correct interpretation of the will and is supported by the cases cited by the learned judge relevant thereto. I find it unnecessary to add anything to his Honour's reasoning. The appeal, in my opinion, should be dismissed. (at p619)
TAYLOR J. This appeal from the Supreme Court of South Australia (Brazel J.) is concerned with questions which, in the circumstances related in the reasons of the learned judge of first instance, have arisen in connexion with the administration of the estate of Norman Harold McBride (hereinafter referred to as the testator). (at p619)
2. The testator died on 27th May 1946 and his widow, who during her lifetime was, in common with her son, the appellant, entitled to a one-half share of the profits derived from the carrying on of the testator's pastoral business, died on 23rd February 1957. Two of the three questions which are now before us are concerned with defining the extent of the interest in the estate which then devolved pursuant to a direction in the will that upon the death of the testator's wife the whole of his estate should be realized and converted into money and divided into two equal shares or parts, one such share or part to be paid to his said son absolutely and the remaining equal share or part to be held in trust and the income thereof paid to his daughter during her life and after her death such remaining half-share to be divided between her children surviving her in equal shares absolutely. (at p619)
3. The source of the dispute which has arisen is to be found in the state of affairs which existed at the date of the death of the testator. As already appears he died shortly after the end of the war, he had apparently been ill for some time, it had been difficult to obtain adequate labour on his grazing property, his son, the appellant, had been engaged on war service, seasonal conditions had been difficult a few years earlier and at the time of the testator's death the property was not being worked to the best advantage. In particular, it was carrying only 1,850 sheep. Whether at this precise point of time it was capable of carrying any greater number without attention to the extensive drains by means of which water was obtained for stock does not clearly appear. But by the 30th June 1947 the number of sheep on the property had increased to 2,840 and a year later the number rose to 4,112. This seems to have been close to the normal carrying capacity of the property and it approximated the number of sheep on the property - 4,346 - at the date of the widow's death. The increase from 1,850 sheep on the 27th May 1946 to 4,112 on the 30th June 1948 was almost entirely the result of natural increase. Altogether, the natural increase over this period was 3,371 and of these only some 784 sheep were sold. (at p620)
4. The appellant's contention is, in effect, that at the time of the testator's death the corpus of the estate comprised 1,850 sheep and no more; that corpus did not bear the cost of increasing the number of sheep on the property; that, on the contrary, the life tenants went without income to which they were entitled in order that the flock might be built up and that, on the death of the widow, the trustees, in the circumstances of the case, should have apportioned the sheep then on the property, as to 1,850, to corpus, and as to the balance, to income. It is not contended that the trustees acted wrongly in building up the flock by retaining most of the natural increase during the first two years after the testator's death, but it is asserted that the sheep so retained constituted an unrealized profit, that, for this reason, it was proper to say that the flock was built up at the expense of the life tenants and, accordingly, that, upon the widow's death, it was proper to make an apportionment in the manner already mentioned. That is to say, that the widow's estate should now be regarded as having a one-half interest in the proceeds of the sheep over and above the original number of 1,850. Upon what basis the 1,850 sheep belonging to capital were to be identified is a matter of some difficulty but this seems to be a minor problem in the way of the appellant. (at p620)
5. In these circumstances, the following questions were raised for consideration and determination: 1 (c) Whether the corpus of the estate of the testator was, on 23rd February 1957 properly comprised (inter alia) of (i) 4,346 sheep ; (ii) 1,850 sheep ; (iii) any other and if so what other number of sheep? 1 (f) Whether in the calculation for the purposes of cl. 10 of the will of the testator of the net profits derived from the carrying on of the testator's pastoral business during the lifetime of his widow, the profit on livestock account in each year (i) was the excess (if any) of, on the one hand, the proceeds of sales of livestock during the year plus the value of livestock which were used for rations during the year plus the value of livestock on hand at the end of the year over, on the other hand, the value of livestock on hand at the beginning of the year plus purchases of livestock during the year; or (ii) was the excess (if any) of the net proceeds of livestock sold during the year over the net cost of livestock bought during the year; or (iii) should have been ascertained in some other and what manner? These questions were answered by Brazel J. as follows: "1 (c) That the corpus of the estate of the deceased was on 23rd February 1957 properly comprised (inter alia) of 4,346 sheep" and "1 (f) That in the calculation for the purposes of cl. 10 of the will of the testator of the net profits derived from the carrying on of the testator's pastoral business during the lifetime of his widow the profit on livestock account in each year was the excess of the net proceeds of livestock sold during each year over and above the net cost of livestock bought during such year". (at p621)
6. There is some advantage, I think, in attempting, first of all, to deal with the problems raised by the second question and, in doing so, to make some reference to the yearly statements of account to which we were referred. Included in these statements were livestock trading accounts and profit and loss accounts in respect of the several annual accounting periods between the death of the testator and the death of his widow. These, however, were prepared after the death of the widow and, in spite of the fact that it was said that "the life tenants, as from the year ending 30th June 1948, allowed the greater part of the income credited to their respective accounts to remain in the estate account with Elder Smith & Co. Limited", it is by no means clear how the accounts were made up from time to time during the widow's lifetime. But the case was argued on the basis that the accounts before us were the trustees' accounts for the accounting periods in question and, implicitly at least, we were invited to treat them as such. (at p621)
7. A perusal of the livestock trading accounts reveals that each account commences with an item relating to stock on hand (sheep, cattle and horses) at the beginning of the year. The value assigned to this item is, of course, the amount appearing in the preceding account for stock on hand at the end of the period to which it relates. Then follows an item relating to stock purchases which shows, inter alia, the number of sheep purchased during the year and the amount paid for them and, finally, there appears the number of natural increase during the year. On the other side of the account appear items particularizing, inter alia, the number of sheep sold and the amount realized, the number and nominal value of sheep used as rations, the number of sheep lost by death and, finally, the number and value of sheep on hand at the end of the year. For the purposes of the account the sheep on hand at the end of the year were taken in at an average value per head which was arrived at by taking into account, on the one hand, the aggregate of (1) the number of sheep on hand at the beginning of the year; (2) the number purchased during the year; and (3) the number of natural increase and, on the other, the aggregate of the book value of item (1), the cost price of item (2) and the value of the natural increase at a selected figure of ten shillings per head. It will be seen, therefore, that the credit side of the livestock trading account, in each year, contained an element of unrealized gross profit. But according to the answer of the learned judge of first instance to question 1 (f) both stock on hand at the beginning of the year and at the end of the year should have been left out of account in ascertaining the distributable profits of the business during each accounting period. In coming to this conclusion he followed implicitly the decision in In re Porter; Porter v. Porter (1930) 31 SR (NSW) 115; 48 WN, at p 20 where the competing contentions of the parties raised the very point with which we are concerned. In the result it was held in that case that, for the purpose of ascertaining the annual profits of the testator's pastoral business, to which a life tenant was entitled, no account should have been taken of the value of the livestock on hand either at the beginning or the end of the relevant accounting periods. The question was, as their Honours said: "Is a life tenant entitled to have credited to him an ascertained book profit, or is he only entitled to a realized profit?" (1930) 31 SR (NSW), at p 123; 48 WN, at p 20 This question they found readily answered by an observation in McIntyre v. McIntyre (1914) 15 SR (NSW) 45; 31 WN 132 where it was said: "Where a testator leaves a business to his trustees to carry on for the benefit of beneficiaries and directs, . . . that the income is in effect to be paid to a life tenant, all the life tenant in any year is entitled to is the amount which, in the ordinary prudent management of that business during the course of that year, was available for distribution as cash" (1914) 15 SR (NSW), at p 48; 31 WN, at p 134 . How far this passage was decisive of the precise problem in In re Porter; Porter v. Porter (1930) 31 SR (NSW) 115; 48 WN 17 is open to doubt since the basis upon which distributable income was to be ascertained in the earlier case had already been settled by a direction given some little time before the hearing of the reported case and there is no precise information in the report concerning the manner in which, pursuant to those directions, the accounts had been made up. Nevertheless, it is clear that assent was given to the proposition that, within proper limits, it is for trustees who are carrying on a business for the benefit of beneficiaries, to determine what are and what are not distributable profits. However, with the greatest deference to the very learned judges who decided In re Porter; Porter v. Porter (1930) 31 SR (NSW) 115; 48 WN 17 I find myself unable to subscribe to the proposition that a livestock trading account constructed only by a comparison of the amounts expended in the purchase of livestock during a particular accounting period with the amount realized by the sale of livestock during the same period, can, with any reality, reflect the profit or loss in the activity with which the account is concerned. Is it possible to say that a loss has been incurred if all we know is that in a particular year one thousand sheep have been purchased at 1 pound per head and five hundred sheep, being either some of those purchased or others, have been sold at 1. pound 10. 0 per head? Or can it be said that a profit has resulted if all we know is that one thousand pounds have been expended in the purchase of sheep and one thousand and five hundred pounds realized by the sale of natural increase? And, in such a case, is the answer to remain unaffected if we are allowed to know that during the course of the year five hundred sheep valued at 1 pound per head have died? There is, of course, as was said by Farwell J. in Bond v. Barrow Haematite Steel Co. (1902) 1 Ch 353 , "no single definition of the word profits which will fit all cases" (1902) 1 Ch, at p 366 . See also In re Spanish Prospecting Co. Ltd. (19111) 1 Ch 92, at p 106 ; and Webb v. Australian Deposit and Mortgage Bank Ltd. (1910) 11 CLR 223, at p 241 . According to Higgins J. in the lastmentioned case "the meaning of 'profits' is not rigid and absolute; it is flexible and relative" [1910] HCA 48; (1910) 11 CLR 223, at p 241 and it is because of this that it is impossible for a Court to lay down any hard and fast rule capable of solving in all cases the problem of what is and what is not comprehended by the word "profits". Consideration must be given to the nature of the relevant business activity and to the manner in which it is customarily carried on and, if in the course of carrying on a business pursuant to a direction to do so trustees adopt an appropriate and conventional method of accounting in order to determine the amount of profit to which a life tenant becomes entitled during any accounting period, no exception can be taken. No doubt it was for this reason that this Court was prepared to accept as proper and usual the form of accounting disclosed by the facts in Thornley v. Boyd [1925] HCA 41; (1925) 36 CLR 526 and see sub. nom. Boyd v. Thornley (1925) VLR 569 . These observations must, of course, be understood subject to the qualification that if in any particular case it appears from the terms of the trust instrument that business profits are to be ascertained upon a cash basis only, or upon any other basis, those terms must prevail. But in the present case no such indication appears, and the testator, as a person conversant with the manner in which pastoral businesses are generally carried on, must be taken to have intended the profits of the business after his death to be ascertained by a process of accounting conventional and appropriate in that type of business. As was said in Ritchie v. Trustees Executors and Agency Co. Ltd. [1951] HCA 38; (1951) 84 CLR 553 : "When a fractional part of the share of Charles William Campbell was settled upon trusts for life tenant and remaindermen, the income to be taken by the former under the settlement was necessarily made to depend upon the income properly receivable by the trustees of the settlement from the trustees of the will. The basal intention to be presumed in the case of the settlement is that the life tenant should take the net balance of the fractional part of the income as ascertained in conformity with trusts of the will and paid over as such to the trustees of the settlement. That means, in the case of the trusts of the will, the net income which the trustees, acting in a proper and recognized course of management and employing a system of accounting usual in or appropriate to the business of station properties, determine to be the divisible income of the accounting period" (1951) 84 CLR, at p 583 . Brazel J. does not appear to have been referred to this statement of principle but, in any event, he was disposed to think that, in speaking of "dividing" the net profits with a direction to "deduct" the manager-son's salary in order to ascertain "the net profits available for division", the will contemplated a division of cash which was immediately available. Moreover, he observed that "if the life tenants were held to be entitled to treat unrealized book profits as cash, the scales could not be said to be fairly held between them and the remaindermen". But the relevant provisions of the will are in quite a usual form and they do not require division in cash between the life tenants at any specified time or times; what is contemplated is a division of the "net profits derived from the carrying on of my pastoral business during the lifetime of my wife". There is, in my view, nothing in the will to indicate that the testator either contemplated or intended that the profits of the business should be ascertained otherwise than by some accounting method conventionally used in the pastoral industry. And, of course, if the testator intended that the net profits should be ascertained by some such appropriate and conventional method of accounting there can be no complaint that the method employed did not do justice as between the life tenants and the remaindermen. For these reasons question 1 (f) should be answered by saying that no exception can be taken to the form of accounting employed by the trustees for the purpose of ascertaining the net profits of each year. (at p625)
8. Essentially question 1 (c) is concerned with the rights of the parties in the circumstances as they were found to exist upon and immediately after the death of the testator's widow. Literally the question which is asked enquires whether, upon the death of the widow, the estate of the testator was entitled to the whole of the sheep, some 4,346, then depastured on the property, or whether, on the contrary, it was entitled only to 1,850 of them. The contention that the interest of the estate was limited to 1,850 only of the sheep rested upon the circumstances already related, it being said that the sheep in excess of this number represented accrued profits of the business and, in effect, that they belonged to the life tenants. But it is not possible to entertain the suggestion that the plaintiff and his mother at any time acquired any interest in the natural increase which was retained in order to build up the flock. Their interest was in the profits of the business, from time to time, and these, of course, could be ascertained only by taking into account the relevant business operations. However, it may do less than justice to the plaintiff's argument to deal with the question in this way for, in spite of the form of the question, what was primarily asserted was, in effect, that upon the ultimate realization of the business assets, including the sheep in question, after the widow's death, the proceeds of the sale of sheep in excess of 1,850 should be credited to the widow's estate and the plaintiff in equal shares. The ground upon which this contention was based was that, as was said in McIntyre v. McIntyre (1914) 15 SR (NSW) 45; 31 WN 132 and in In re Porter; Porter v. Porter (1930) 31 SR (NSW) 115; 48 WN 17 , trustees carrying on a pastoral business are not justified in building up the number of livestock on the property at the expense of life tenants. But the statements to this effect were concerned with defining the duties of trustees and not with defining or identifying the distributable profits of any such business. No doubt it was not for the trustees to build up the flock at the expense of the life tenants for the benefit of the remaindermen but it does not follow that whenever the number of sheep carried on a grazing property managed by trustees is increased by the retention of all or some part of the natural increase it can be asserted that the flock is being built up at the expense of the life tenants. Primarily the profits from a business such as that with which we are concerned is earned by the sale of wool and in the discharge of their duties to both life tenants and remaindermen it is of importance that the property shall be stocked to its full carrying capacity from time to time. In contrast with the return from the sale of wool the profits on the sale of surplus sheep are a matter of minor importance. Essentially it is a matter for the trustees to determine how the business shall be carried on to the best advantage. In particular, it is for them to determine whether livestock shall be sold in the ordinary course of business and, in the present case, it is worthy of note that the trustees were authorized "in the carrying on of the said business to exercise all powers reasonably necessary or incidental thereto as fully and effectually as" the testator could, himself, exercise them "if alive and attending to the matter in question and in person". Further, it is obvious that the method of accounting which we have already discussed resulted in the "average" value of all natural increase surviving at the end of each year being taken into account for the purpose of ascertaining the profits to which the life tenants were entitled. Accordingly, the claim to some part of the proceeds of the ultimate realization of the sheep on the property at the widow's death cannot, on any view, extend further than a claim to the difference between the book value and the sale price of the number of sheep in excess of 1,850. How the excess is to be identified it is impossible to say but, however this may be, it is quite clear that no part of such proceeds represent in any way profits derived from the carrying on of the business. It is, I think, unnecessary to say more than this for the contention which is now raised was the subject of consideration in Thornley v. Boyd [1925] HCA 41; (1925) 36 CLR 526 and the explicit observations and decision in that case make it clear that it must be rejected. That being so the answer given by the learned primary judge to question 1 (c) must stand. (at p626)
9. The remaining question in the case is concerned with cl. 3 of the will. By that clause the testator gave to his widow "free of probate succession or estate duties: (a) all my jewellery and ornaments of my person (b) all moneys payable at my death under any and all insurance policies (c) one hundred and ninety-six (196) shares in Elder Smith & Co. Limited". Thereafter the testator bequeathed a number of pecuniary legacies before making provision for the carrying on of his business and the ultimate disposal of the residue. The testator's will was made on 29th July 1944 and it appears that at that time he was the holder of one hundred and ninety-six (196) shares of 10 pounds each in the capital of Elder Smith & Co. Limited. These shares were paid to 6 pounds. But before the death of the testator - although how long before does not appear - the ordinary shares of that company were converted into 1 pound shares paid to 12s. As a result the testator, at the time of his death, was the holder, not of one hundred and ninety-six 10 pounds shares, but of one thousand nine hundred and sixty 1 pound shares, in that company. Brazel J. took the view that the gift of the shares was a general legacy and held that one hundred and ninety-six 1 pound shares only passed under the bequest. He was unable to find any indication in the will of any other intention and felt that his conclusion was fortified by the provisions of s. 27 of the Wills Act, 1936. (at p627)
10. The question which arises in these circumstances is one that has been the subject of debate on many occasions and, perhaps, the strongest case in favour of the view which his Honour took is In re Willcocks; Warwick v. Willcocks (1921) 2 Ch 327 . In that case it appeared that the testator had made three separate bequests of three different classes of stock each nominated by a precise number of pounds shillings and pence. The parcels of stocks so described and bequeathed answered, precisely, the description of stocks possessed by the testator at the time when her will was executed. But before her death she had sold the stock and invested the proceeds in the purchase of real estate. It was held that the legacies were general and, accordingly, that there had been no ademption, P. O. Lawrence J. being of the opinion that, "it would be drawing too fine a distinction to hold that a legacy of stock was general where the sum happened to be a round sum, but was specific where the sum happened to be one which ran into pounds, shillings and pence" (1921) 2 Ch, at p 330 . The point has been the subject of discussion in cases such as: In re Gillins; Inglis v. Gillins (1909) 1 Ch 345 ; In re Clifford; Mallam v. McFie (1912) 1 Ch 29 ; In re Hawkins; Public Trustee v. Shaw (1922) 2 Ch 569 ; In re O'Connor; Westminster Bank Ltd. v. O'Connor (1948) 1 Ch 628 ; In re Rose; Midland Bank Executor and Trustee Co. Ltd. v. Rose (1949) 1 Ch 78 ; and In re Rose; Rose v. Inland Revenue Commissioners (1952) 1 Ch 499 . The problem is, of course, one to be resolved by a close consideration of the circumstances of each particular case and of the precise provisions of the will. But upon consideration of the authorities I am of opinion that where, as here, a will contains a bequest of a specified number of shares and it appears that at the time when the will was made the testator was the holder of that precise number of shares and no more, very little further is required to support the contention that the gift is a specific bequest of the shares of which the testator was then the holder. In the present case there is, I think, some further slight indication that what the will speaks of are the shares of which the testator was the holder at the time when his will was executed. I find this in the fact that the bequest of the shares is found closely associated in the same clause with specific bequests of the testator's jewellery and ornaments and insurance moneys, and it is not unreasonable to regard the clause as one designed to deal in its entirety with specific property of the testator. I think it ought therefore to be held that the testator made a specific bequest of the shares which he held at the date of his will and, further, that there was no ademption by reason of their subsequent subdivision into one pound shares (In re Clifford (1912) 1 Ch 29 and In re Greenberry; Hops v. Daniell (1911) 55 Sol Jo 633 ). That being so question 1 (a), as propounded in the originating summons, ought to be answered by saying that the widow of the deceased was entitled to receive pursuant to the terms of the will of the testator one thousand nine hundred and sixty 1 pound ordinary shares paid to 12s. in Elder Smith & Co. Limited. (at p628)
WINDEYER J. I have had the advantage of reading the judgment of Taylor J. On the first matter argued, namely the rights of life tenant and remaindermen, I do not wish to do more than briefly to express my concurrence in what he has written and my view on some matters referred to during the argument. All the livestock on the property at the death of the testator's widow formed part of the testator's estate. The entries, appearing at the end of the livestock trading account for the period of 1st July 1956 to 23rd February 1957, whereby some of the flock are treated as corpus and the others as belonging to the life tenant, are thus the result of a misconception. The right of the life tenant was to have the profits of the business considered as a whole, whether it was well managed or ill managed. Whether or not on any given day there were more or less stock running on the property than prudence and proper management might have then dictated, could not make the life tenant the owner of any particular beast or any number of beasts or of the value thereof. The position is quite different from a case where stock on a farm is enjoyed by a legal tenant for life subject to his maintaining the flock or herd, as in In re Powell; Dodd v. Williams (1921) 1 Ch 178 . There is perhaps more analogy with the case of a life tenant in possession adding to a herd of deer, the fresh deer becoming subject to the trusts of the will, as in Paine v. Countess of Warwick (1914) 2 KB 486 . But cases concerning life tenants in possession are not really much help in considering the duties of trustees carrying on pastoral businesses in Australia. The discretions they must exercise in doing so are ordinarily such that the rights of beneficiaries cannot be determined by applying at all times and in all circumstances some simple formula about keeping up the number and value of flocks and herds. There are, in the long line of cases on this matter ending with the judgment of Burbury C.J. in Re Archer (1961) TasLR 1 statements of general principles that may guide trustees in the administration of station properties. But all these have to be read in their proper contexts. In this case the annual accounts are compiled in accordance with an appropriate method of accounting. I agree that there is no reason why, so far as they relate to transactions up to the widow's death, they should be rewritten. (at p629)
2. I may add that the evidence does not, in my view, support the allegation made in argument that when the trustees entered upon the management of the property they had to restock and restore it after it had been denuded by drought, and that they did so at the expense of the life tenant; or that, in any other way, they failed to hold the scales properly as between life tenant and remainderman. (at p629)
3. Turning to the next question, the effect of the gift in the will of "one hundred and ninety six (196) shares in Elder Smith & Co. Limited": The question was argued on the assumption that if this was a general legacy as distinct from a specific legacy, then the donee could take only 196 shares of the kind or denominations or ordinary shares into which the issued capital of the company was divided at the date of the testator's death, namely 196 shares of one pound each (paid to twelve shillings). This, it is said, is the result of s. 27 of the Wills Act, 1936 of South Australia, which is in the same terms as s. 24 of the English Wills Act, 1837. For this In re Gillins; Inglis v. Gillins (1909) 1 Ch 345 , was relied upon. If, on the other hand, the gift is of specific property, then it is agreed the provision of the Wills Act does not apply, for such a gift is itself regarded as an indication of a contrary intention: see Hawkins on Wills 2nd. ed. (1925) p. 25. Therefore, if this was a gift of the specific parcel of 196 shares of 10 pounds each (paid to 6 pounds) that the testator had when he made his will, then the legatee was entitled to the 1,960 shares of 1 pound each (paid to 12/-) derived from such 196 shares and forming part of the testator's estate at his death. The company's subdivision of its 10 pounds shares into 1 pound shares would not operate as an ademption: In re Clifford; Mallam v. McFie (1912) 1 Ch 29 ; In re Leeming; Turner v. Leeming (1912) 1 Ch 828 . (at p630)
4. The words of the gift, read literally and abstracted from all context and circumstance, are appropriate to a general legacy: and the Court, it is said, leans in favour of treating a legacy as general or demonstrative, rather than specific. That, however, is because when the question has arisen the alternative to treating the legacy as general or demonstrative was that the testator's apparent intention to benefit the legatee would have miscarried as the result of an ademption. A tendency of courts that is the result of a desire to effectuate intention is not to be erected into a general principle that must be observed even if doing so seems likely to frustrate intention. A gift of a thing, although expressed in general terms, cannot be a general legacy unless it be a pecuniary legacy - that is to say, a direction that if the testator should not possess such a thing at his death, his executor should buy it out of his residuary personalty and hand it over to the legatee. (at p630)
5. How then does the matter stand in this case ? A gift of a particular number of shares is not a specific legacy merely because the testator in fact had that number at the date of his will. But in this case there is more to it than that. In In re Nottage; Jones v. Palmer (No. 2) (1895) 2 Ch 657 , Rigby L.J. said: "You have got a long way towards a specific gift if you come to the conclusion that he is trying to describe something which he has" (1895) 2 Ch, at p 664 . And that, surely, is so here. It is hardly likely that a testator wishing to give a general legacy of a number of shares in a particular company would choose to give such an odd number as 196. On the other hand, when he had exactly that number it is natural to suppose that he was referring to that parcel. And the place of the gift in the scheme of the will is most significant. The will is framed with numbered clauses. Successive clauses run as follows: "3 - I give to my wife free of probate succession or estate duties: (a) all my jewellery and ornaments of my person (b) all moneys payable at my death under any and all insurance policies (c) one hundred and ninety-six (196) shares in Elder Smith & Co. Limited. 4 - I bequeath the following pecuniary legacies free of all duties . . . (to one person 300 pounds to another 200 pounds). 5 - I give devise and bequeath the whole of the residue of my estate to my trustees . . . (upon trusts set out)". (at p631)
6. The legacies of the jewellery and of the insurance moneys are clearly specific. The legacy of the shares appears in the same clause. And that clause is carefully separated from the clause giving general pecuniary legacies. Having regard to all this, the proper conclusion, in my opinion, is that a specific legacy of the testator's shares was what he intended. (at p631)
7. I would add, however, that, even if the legacy were a general legacy of 196 shares, I am by no means satisfied that it would have to be read as 196 shares of one pound each. True it is, that in that case what has generally been taken to be the operation of the provision of the Wills Act would not be displaced by the contrary intention that it is said is to be found in the gift of a specific thing. But Lindley L.J. in In re Portal and Lamb (1885) 30 Ch D 50 , after remarking that "the object of this section was not to defeat, but to give effect to the testator's intention" (1885) 30 Ch D, at p 55 , went on to say: "it does not say that we are to construe whatever a man says in his will as if it were made on the day of his death" (1885) 30 Ch D, at p 55 . Although the decisions in In re Gillins; Inglis v. Gillins (1909) 1 Ch 345 and Re M'Afee (1909) 1 IR 124 , have not been questioned, I find difficulty in accepting the view that, as Warrington J. put it, there is "no distinction between the quantity and quality of the subject of a bequest for the purpose of applying s. 24" (1909) 1 Ch, at p 351 . A general bequest of all things of a particular sort will, no doubt, carry all things of that sort that the testator had at his death. But that does not mean that a general bequest of a given number of things of one sort is to be construed as a general bequest of the same number of things of another sort. If, when the testator made his will, his language denoted a form of property of one kind, I do not think it right to construe it as denoting property of another kind: I do not think that s. 24 requires this. An ordinary share in a company is a right to a specified amount of the issued share capital of that company. For the purposes of ascertaining the rights of the shareholder to dividends and his liability on winding up, it is measured by a sum of money. A subdivision of the fractional interest in capital represented by such a share is not, in my view, giving a share a new quality; it is creating a different share. But however that may be, the legacy here was, I think, specific; and on that ground the legatee was entitled to have the 1960 shares of one pound each, paid to twelve shillings, that the testator had. They are the exact equivalent of, are derived from and represent the very 196 shares of ten pounds each, paid to six pounds, that he gave by his will. (at p632)
ORDER
Appeal allowed. Order of the Supreme Court of South Australia varied by deleting the answers to questions 1 (a) and 1 (f) and by substituting therefor the following answers: 1 (a). That pursuant to the will of Norman Harold McBride, his widow, Hilda McBride, became entitled to receive one thousand nine hundred and sixty (1,960) shares of 1 pound each in the capital of Elder Smith & Co. Limited; 1 (f). That no exception can be taken to the form of accounting employed by the trustees for the purpose of ascertaining the net profits of each year prior to the death of the said Hilda McBride.Costs of all parties to the appeal to be paid out of the residuary estate of the testator.
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