Estate of the late Morris Zion Forbes v State of New South Wales & Ors [2010] NSWSC 1439 (16 December 2010)

Last Updated: 20 December 2010

NEW SOUTH WALES SUPREME COURT

CITATION:
Estate of the late Morris Zion Forbes v State of New South Wales & Ors [2010] NSWSC 1439


JURISDICTION:


FILE NUMBER(S):
2010/144071

HEARING DATE(S):
7 December 2010

JUDGMENT DATE:
16 December 2010

PARTIES:
Estate of Morris Zion Forbes (Plaintiff)
State of New South Wales (first Defendant)
South Eastern Sydney and Illawarra Area Health Service (second Defendant)
The Attorney-General in adn for the State of New South Wales (third Defendant)


JUDGMENT OF:
Hallen AsJ

LOWER COURT JURISDICTION:
Not Applicable

LOWER COURT FILE NUMBER(S):
Not Applicable

LOWER COURT JUDICIAL OFFICER:
Not Applicable



COUNSEL:
Mr M Meek SC (Plaintiff)
Mr T Chisholm (Sol)(first and third Defendants)
Mr M Hamwood (Sol)(second Defendant)

SOLICITORS:
Green & McKay (Plaintiff)
The Crown Solicitor's Office (first and third Defendants)
Thomson Lawyers (second Defendant)



CATCHWORDS:
PROCEDURE
Amendment of Summons
Joinder of parties
CONSTRUCTION OF WILL
meaning of identified beneficiary
whether gift to identified beneficiary (Hospital) lapsed
identity of beneficiary entitled
whether organisation successor to beneficiary

LEGISLATION CITED:
Area Health Services Act 1986
Civil Procedure Act 2005
Civil Procedure Act 2006
Health Services Act 1997
Public Hospitals Act 1929
Succession Act 2006

CATEGORY:
Principal judgment

CASES CITED:
Australian Executor Trustees Ltd v Ceduna District Health Services Inc & Ors [2006] SASC 286
Higstrim v Ray (1895) 16 LR (NSW) Eq 1
In re Groom [1897] 2 Ch 407
In re Hall-Dare [1916] 1 Ch 272
In re Servers of the Blind League [1960] 1 WLR 564
Murdocca v Murdocca (No 2) [2002] NSWSC 505
Re Tyrie, deceased (No 1) [1972] VicRp 16; [1972] VR 168
South Eastern Sydney Area Health Service v Wallace, [2003] NSWSC 1061

TEXTS CITED:
Government Gazette No. 153 on 26 September 1986
Government Gazette No. 123 on 29 July 1988
Government Gazette No. 92 on 28 July 1995

DECISION:
1. Order that the Plaintiff’s notice of motion filed on 24 August 2010 is dismissed.
2. Declare that upon a true construction of the Will of Morris Zion Forbes, and in the events that have happened, the second Defendant is entitled to the share of the deceased’s estate referred to in Clause 9.60 of the deceased’s Will for “Prince Henry Hospital of Anzac Parade Little Bay”.
3. Order that the Plaintiff’s costs, calculated on the indemnity basis, of the proceedings, including costs of the notice of motion referred to in Order 1 above, be paid or retained as the case may be, out of the residuary estate of the deceased.
4. Order that each of the Defendant’s costs, calculated on the ordinary basis, of the proceedings, be paid out of the residuary estate of the deceased.



JUDGMENT:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION


HALLEN AsJ

16 December 2010


2010/144071 ESTATE OF THE LATE MORRIS ZION FORBES v

STATE OF NEW SOUTH WALES

JUDGMENT

1 HIS HONOUR: The application, initially, before the Court was the Plaintiff’s notice of motion, filed on 24 August 2010, in which directions were sought as to the identification of persons/parties who, or which, are, or may be, interested in a particular gift made by Morris Zion Forbes (“the deceased”) in his Will. The substantive proceedings, commenced by Summons filed on 9 June 2010, sought the determination of certain questions relating to the administration of the deceased’s estate.

2 Following the mention of this matter before me in the Friday List on 3 December 2010, the matters set out above were discussed. I was informed that the basic facts in this case were not in issue. I expressed a tentative view on the construction of the deceased’s Will, which it appeared, also was not the subject of real dispute. The parties agreed, in those circumstances, that the matter could be determined, finally, promptly, and without the need for further directions adding additional parties.

3 It was necessary, at the hearing, which took place on 7 December 2010, for an amendment to be made to the Summons, which amendment was not opposed by any of the parties. In the circumstances, I granted leave to the Plaintiff to file in Court an amended Summons.

Background Facts

4 The deceased died on 3 September 2007, leaving a Will that he made on 27 May 1997.

5 So far as is relevant, the deceased’s Will provided:

“7.00 I give all the rest of my property, after payment of my estate liabilities to the Public Trustee and direct him to divide it into enough parts to pay those of the following gifts which take effect. All parts are of equal value. (No parts are to be set aside for any gifts which do not take effect).

8.00 The term “estate liabilities” includes:

- my funeral expenses

- all debts I owe when I die

- all expenses my Trustee incurs in administering the estate

- all charges my Trustee makes for doing the work.

...

9.60 I give 2 parts each to those of the following charities which exist when I die:

- PRINCE OF WALES HOSPITAL of High Street Randwick

- PRINCE HENRY HOSPITAL of Anzac Parade Little Bay

- THE PRINCE ALFRED HOSPITAL of Missenden Road Camperdown

- SYDNEY HOSPITAL of Macquarie Street Sydney

- ST VINCENTS HOSPITAL of Darlinghurst Road Darlinghurst

9.61 I request that, (if possible), these gifts be used for medical research.”

6 Probate of the deceased’s Will was granted to the Plaintiff on 16 November 2007.

7 The present Defendants are, respectively, the State of New South Wales (which effectively submitted to the orders of the Court), the South Eastern Sydney and Illawarra Area Health Service (“SESIAHS”) and the Attorney General in, and for, the State of New South Wales.

8 The evidence reveals that the current value of the “parts” which are the subject of potential dispute is about $80,000. However, the legal costs of the proceedings of the parties may have to be deducted from this amount.

Issues

9 The principal issue that was agitated, at the hearing, relates to whether the gift in Clause 9.60 of the deceased’s Will to “Prince Henry Hospital of Anzac Parade Little Bay” has lapsed.

10 The Plaintiff brought the notice of motion because of its concern that, in the event that the gift lapsed, there may be an intestacy; alternatively, that the remaining four identified beneficiaries in Clause 9.60 would take and share the two parts that would have passed to the Prince Henry Hospital; or that all residuary beneficiaries would share the two parts; or those two parts are impressed with a charitable trust and should be administered cy-pres. A final alternative considered was that the second Defendant, as the entity into which the Prince Henry Hospital has transmogrified, or as its statutory successor, was entitled to the two shares that would have passed to the Prince Henry Hospital.

11 The evidence reveals that further searches to ascertain the identity of persons who would be entitled on intestacy will be expensive and problematic. Research would need to be conducted in Russia, Israel and Egypt and it would be highly speculative, time consuming and likely to be unproductive. An estimate of $15,000 is given to conduct that research.

12 Commendably, the parties that have appeared at the hearing have raised arguments going to the issue of the construction of the deceased’s Will. In my view, they adopted an appropriate course, bearing in mind the provisions of s 56 of the Civil Procedure Act 2006.

13 I was greatly assisted by the legal representatives of each of the parties who have appeared and I am indebted to each for his assistance.

14 I am satisfied that no benefit would be gained, and that there would be a substantial detriment, to the administration of the estate, by joining parties to represent potential beneficiaries entitled on intestacy.

15 For all of these reasons, it was unnecessary to consider the addition of parties other than those already joined and the notice of motion filed by the Plaintiff will be dismissed.

16 Because the deceased’s Will was made before 1 March 2008, and the deceased died before that date, the Succession Act 2006, does not apply.

Construction of the deceased’s Will

17 Clause 7.00 of the deceased’s Will specifically provides that the gift of residue is to be divided into enough parts to pay those gifts “which take effect”. The Will goes on to state that “No parts are to be set aside for any gifts which do not take effect”.

18 It is submitted that, unless one of the exceptions applies, where a gift by will is made to an institution which ceases to exist prior to the testator’s death, the general rule is that the gift lapses: In re Servers of the Blind League [1960] 1 WLR 564; Australian Executor Trustees Ltd v Ceduna District Health Services Inc & Ors [2006] SASC 286 at [8].

19 Accordingly, even if it were established that the gift of the two shares to the Prince Henry Hospital were to have lapsed, to which issue I shall return, that would result in that gift “not taking effect”. Hence, the two parts to which the Prince Henry Hospital would have been entitled under Clause 9.60 of the deceased’s Will would not be included in the number of parts to be calculated by the Plaintiff in dividing the residuary estate.

20 Alternatively, if the second Defendant is the organisation into which the Prince Henry Hospital has transmogrified, or if as is put by way of alternative, that it is the statutory successor of the Prince Henry Hospital, it is entitled to the share passing to that Hospital under Clause 9.60 of the deceased’s Will.

21 In either event, it follows that the gift does not lapse and none of the alternatives (except, perhaps the final one) to which the Plaintiff referred could occur.

22 I am satisfied, however, in the circumstances of the case that the gift to the Prince Henry Hospital does not lapse. I reach this conclusion because I accept the submissions made on behalf of the second Defendant.

Whether The Prince Henry Hospital Ceased to Exist

23 The threshold question for application of the lapse rule is whether the named beneficiary institution had ceased to exist at the time of the deceased’s death.

24 It is not necessary to go into exquisite detail of the history of the Prince Henry Hospital. That history has been set out in the affidavit of Jacqueline Terri Grossmith, the Manager Business Development for the Second Defendant, sworn 16 November 2010, and in the exhibits to that affidavit. A useful summary is also set out in the submissions, which I shall leave with the Court file, made on behalf of the second Defendant.

25 By way of brief summary, it appears not to be in dispute that:

(a) In 1986, the New South Wales government fundamentally restructured the administration of public hospitals by passing the Area Health Services Act 1986.

(b) The Area Health Services Act facilitated:

(i) By s 9, the amalgamation of area health services. Each area health service was a body corporate, pursuant to s 5(2) and s 11(1) of that Act, controlled by an area health board, with functions that included the management of hospitals under its control. Schedule 5 set out machinery provisions dealing with the amalgamation.

(ii) By s 21, the transfer of an hospital under the Public Hospitals Act to one of the newly created area health services. That section enabled the Governor, inter alia, by order published in the Gazette to transfer various categories of Public Hospitals covered by the Public Hospitals Act 1929 to an area health service. In that event, Schedule 6 to the Area Health Services Act set out machinery provisions dealing with that transfer.

(c) The Prince Henry Hospital and the Prince of Wales Hospital were each transferred to the Eastern Health Service constituted by the Act. That transfer was pursuant to an order of the Governor published in Government Gazette No. 153 on 26 September 1986.

(d) The Eastern Health Service, subsequently, amalgamated with the Sydney Area Health Service to form the Eastern Sydney Area Health Service, by order of the Governor published in New South Wales Government Gazette No. 123 on 29 July 1988.

(e) The Eastern Sydney Area Health Service, subsequently, amalgamated with the Southern Sydney Area Health Service, to form the South Eastern Sydney Area Health Service, by order of the Governor published in Government Gazette No. 92 on 28 July 1995.

(f) On the date the order amalgamating the two area health services took effect, the Act provided (by Clause 3 of Schedule 5) for the dissolution of the existing area health services and the cessation of office of existing directors, who became eligible for appointment as members of the board of the new amalgamated area health service. Clause 3(2) of the Schedule 5 then provided,

“An area health service constituted by such an amalgamation is a continuation of, and the same legal entity as the area health services amalgamated.”

(g) On the date of the transfer of a hospital to an area health service, the Act (Clause 2 of Schedule 6) provided for the dissolution of the existing body corporate and the cessation of office of existing directors, who became eligible for appointment as members of the board of the relevant area health service.

(h) In accordance with the Area Health Services Act, a board subsequently administered the Eastern Sydney Area Health Service.

(i) In 1997, the New South Wales Government passed the Health Services Act 1997, repealing both the Area Health Services Act 1986 and the Public Hospitals Act 1929. The South Eastern Sydney Area Health Service became an area health service constituted under s 17 of that Act. The Prince Henry Hospital and the Prince of Wales Hospital each continued under one integrated management structure under the South Eastern Sydney Area Health Service, the corporate body created by the Health Services Act.

(j) On 1 July 1998, the South Eastern Sydney Area Health Service was dissolved and reconstituted as a health service under the Health Services Act 1997. By force of Clause 20 of Schedule 7 of that Act, it was taken to be the same legal entity as the corporate body in existence at the date of the deceased’s Will. As at the date of making the deceased’s Will, the Prince Henry Hospital was part of the South Eastern Sydney Area Health Service; it was not a separate body corporate.

(k) The area health service, itself, was “taken for all purposes (including the rules of private international law) to be a continuation of and the same legal entity as the incorporated health service” that it had replaced (Clause 10 of Schedule 7). Further, Clause 11 provided that “A reference in ... any instrument of any kind ... to any particular area health service is taken to be a reference to its successor ...”.

(l) By Clause 12 of Schedule 7 of the Area Health Services Act, which was applicable at the date of the deceased’s Will, and operated in relation to that Will, the reference to “The Prince Henry Hospital” was a reference to “The Eastern Health Service”. The subsequent amalgamation to form “The South Eastern Sydney Area Health Service” was governed by Clause 3(2) of Schedule 5 so that it was the same legal entity as The Eastern Health Service.

(m) The South Eastern Sydney Area Health Service, subsequently, amalgamated with the Illawarra Area Health Service to form SESIAHS, by order of the Governor published in Government Gazette No. 166 on 22 October 2004, operating from 1 January 2005.

(n) Upon the repeal of the Area Health Services Act, Clauses 10 and 11 of Schedule 7 to the Health Services Act operated to treat the South Eastern Sydney Area Health Service incorporated under that Act as the same entity that existed under the Area Health Services Act.

(o) By that order, SESIAHS, the second Defendant, became the health service to the South Eastern Sydney Area Health Service.

26 It follows that The Prince Henry Hospital ceased to exist in that form between the date when the deceased made his Will and the date of his death. However, it subsequently became the second Defendant, which was taken, for all purposes, to be a continuation of, and the same legal entity as, the incorporated health service it replaced. It was, thus, entitled to receive the gift in Clause 9.60 of the deceased’s Will.

27 In case I am wrong, in concluding that the second Defendant was taken for all purposes to be a continuation of, and the same legal entity as, the incorporated health service it replaced and was thus entitled to receive the gift in Clause 9.60 of the deceased’s Will, I note that in South Eastern Sydney Area Health Service v Wallace, [2003] NSWSC 1061; (2003) NSWLR 259 at [3], it was accepted that the South Eastern Sydney Area Health Service was the statutory successor to the Prince Henry Hospital. Following the amalgamation with the Illawarra Area Health Service, SESIAHS, the second Defendant became the successor health service to the South Eastern Sydney Area Health Service. It follows that the second Defendant is the statutory successor of the South Eastern Area Health Service.

28 In Re Tyrie, deceased (No 1) [1972] VicRp 16; [1972] VR 168, at 177, Newton J set out the lapse rule as it applies to charitable institutions, along with three exceptions to it which he labelled A, B and C. The circumstances in which the exceptions were said to apply may be summarised as follows:

(A) If at the testator's death there is in existence another institution which has taken over the work previously carried on by the named institution and which can properly be regarded as the successor of the named institution, and if the dominant charitable intention of the testator was wide enough to allow the gift to take effect in favour of that successor institution, then the gift will take effect in favour of the successor institution. This is an aspect of the cy-près doctrine.

(B) If upon the true interpretation of the will the testator intended that the gift should operate simply as an accretion of the assets of the named institution so as to become subject to whatever charitable trusts were from time to time applicable to those assets, and if after the named institution itself ceased to exist its assets remained subject to charitable trusts which were still on foot at the testator's death then the gift will be treated as taking effect as an accretion to any property which was at his death subject to those trusts.

(C) If in cases not within (a) or (b) the testator is found upon the proper interpretation of the will to have had a dominant intention to benefit work or purposes of the kind which the named institution carried out notwithstanding that the named institution itself might no longer exist at his death, and if it is practicable as at the death of the testator to apply the gift for the benefit of work or purposes of that kind, and in a way which is in all respects consistent with any other elements of the dominant intention of the testator then the gift will be so applied by means of a cy-près scheme. This is an aspect of the cy-près doctrine more general than that which constitutes exception (a).

29 His Honour also pointed out (at 177) that a gift by will to a particular charitable institution simpliciter, must be treated as a gift for the advancement of the charitable work or purposes of that institution.

30 In case I am wrong in concluding that the second Defendant was taken for all purposes to be a continuation of, and the same legal entity as, the incorporated health service it replaced and was thus entitled to receive the gift in Clause 9.60 of the deceased’s Will, I find that, whilst the areas it covers are wider, the second Defendant is the statutory successor of the Prince Henry Hospital. Its purposes remain the same as they were prior to the Prince Henry Hospital closing down. Its operations remain essentially the same.

31 In my view, on the alternative case presented by the second Defendant, exception (A) set out above applies. This requires a dominant charitable intention, coupled with a successor institution. Each exists in the present case.

Conclusion

32 Thus, whichever way one looks at it, the second Defendant is entitled to the two parts that were left to the Prince Henry Hospital under Clause 9.60 of the deceased’s Will.

Costs

33 Submissions were made on this topic. The area of debate was one not so much as to the order for costs that ought to be made, but rather as to which part of the estate should bear the burden of the costs of the proceedings.

34 Reference was made to Clause 8.00 of the deceased’s Will to which I have referred.

35 Under the Civil Procedure Act 2005, s 98, the Court has an unfettered discretion to award costs, subject to the Act and the rules of court. The discretion extends to the costs of all proceedings whatsoever, including the costs of the administration of any estate or trust and the court has full power to determine by whom, to whom, and to what extent, costs are to be paid.

36 There are some accepted principles that inform the proper exercise of the discretion. One is that if in the proper performance of the duty of an executor, administrator, or trustee, he, she or it seeks the assistance of the court to decide a question, the costs occasioned by the proceeding instituted for that purpose will normally be ordered to be paid out of the estate or the fund to which the question relates, and that includes not only the costs of the executor, administrator, or trustee, but also the costs of the other parties to the proceedings.

37 Another principle that is generally applied is that where the construction of a will by the court is sought, it is appropriate for the costs of all necessary parties to the application to be treated as testamentary expenses and paid from the residue of the estate: Higstrim v Ray (1895) 16 LR (NSW) Eq 1; In re Groom [1897] 2 Ch 407 at 411; In re Hall-Dare [1916] 1 Ch 272.

38 Each of the parties submitted that the costs should be paid out of the residuary estate as this was an administration suit involving the construction of the deceased’s Will.

39 I agree that it is appropriate for the costs of all parties to be treated as testamentary expenses and that they should be paid from the residue of the estate. I am fortified in reaching this conclusion by Murdocca v Murdocca (No 2) [2002] NSWSC 505, at [61], in which Campbell J, as his Honour then was, noted:

“The question of what is included in testamentary expenses was examined by Harvey J in Allen v Attorney-General [15 SR 41, at 43–4]. They include the expenses of getting in the testator’s assets, and of ascertaining who the persons are to whom it is the executor’s duty to hand over the various portions of the testator’s property. Any costs incurred for the purpose of identifying these persons, whether it be occasioned by obscurities in the will or by difficulties arising dehors the will, are testamentary expenses: Re Baumgarten [82 LT 711]; Re Hall-Dare [[1916] 1 Ch 272]; and (apart from anything in the will or by statutory rule provided) are payable before the residue is ascertained: Re Giles [55 LT 51].

40 In the circumstances, I make the following orders:

1. Order that the Plaintiff’s notice of motion filed on 24 August 2010 is dismissed.

2. Declare that upon a true construction of the Will of Morris Zion Forbes, and in the events that have happened, the second Defendant is entitled to the share of the deceased’s estate referred to in Clause 9.60 of the deceased’s Will for “Prince Henry Hospital of Anzac Parade Little Bay”.

3. Order that the Plaintiff’s costs, calculated on the indemnity basis, of the proceedings, including costs of the notice of motion referred to in Order 1 above, be paid or retained as the case may be, out of the residuary estate of the deceased.

4. Order that each of the Defendant’s costs, calculated on the ordinary basis, of the proceedings, be paid out of the residuary estate of the deceased.

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LAST UPDATED:
16 December 2010