In Simpson v Simpson & Ors [2011] QSC 196 the great-grandson of the deceased unsuccessfully argued the expression “leaving issue” in his great-grandmother’s will means not just children but all other lineal descendants. The deceased’s son had died before her, and that share could not pass to her grandson because he had killed his father. The question then was should that share pass further down to the great-grandchild, or revert to be shared between the deceased’s living children.

The decision is significant because the wording in the will, or similar wording, is commonly used in Queensland.

“(c)  to stand possessed of the rest and residue of my estate UPON TRUST to divide the same equally between such of my children as shall survive me and attain the age of eighteen years PROVIDED ALWAYS that if any such child should die without having attained a vested interest hereunder leaving issue who shall survive to attain the age of eighteen (18) years such issue shall take and if more than one equally between them the share in my estate which his her or their parent would have taken had such parent survived to attain a vested interest hereunder.”

The executor’s position was that the deceased child’s share should revert to his surviving siblings, not to the great-grandchild, because, firstly, a proper reading of the above clause meant the gift over was limited to grandchildren, and secondly, the substitution gift was limited to death and not applicable to a disqualification for reason of criminal homicide. The executor succeeded on their first argument, leaving the second one moot.

In support of the broader, lineal descendant, meaning of the term “issue”, which is often used in Wills, the great-grandchild’s submissions referred to other decisions, the plain dictionary meaning, the meaning of the term as used in the Queensland Succession Act 1981, and that, in the context of the clause in the deceased’s will, the narrower interpretation could have been achieved by reusing the terms “child” and “children” and therefore the introduction of the term “issue” indicated a broader meaning.

Justice Peter Lyons took the approach that the determination must be based on the will-maker’s intention from the language of the will as a whole, rather than a rule of construction, noting the High Court in Matthews v Williams (1941) 65 CLR 639 at 650-651 had earlier accepted the prima facie legal meaning of “issue” is descendants or progeny, and not limited to children. He then analysed the words of the clause.

“The only people for whom provision is made for the attaining of a vested interest under the will, conditional on their survival, other than the issue to take in substitution, are the children of the testatrix; and these are referred to as the “parent” of issue who might take in those circumstances.  It is therefore clear that the language of the proviso contains a disposition only to issue of children of the deceased, who are themselves children of the deceased’s children, and accordingly, grandchildren of the testatrix. There is no other language in the will to lead to a different conclusion.”

On the other hand, the clause might be construed such that the gift to a child (or if predeceased, their children) passes wholly intact so that on the deaths of both child and grandchildren, the gift to the grandchild passes to their child, taking the share their parent, the grandchild, might have taken. If the decision is not surprising, it certainly is another reason to avoid legal forms and jargon and insist that all terminology and expressions used in a will are plain and ordinary. In hindsight, the lawyer for the will-maker might have drafted the gift-over proviso by continuing to use the terms “child” and “children” (rather than “issue”) but with offering the following endings to the proviso as alternatives: “and so on for remoter lineal descendants” or “but without substitution for any remoter lineal descendants”.

re: FAMILY COURT OF AUSTRALIA decision in Keach & Keach and Ors [2011] FamCA 192 (9 March 2011)

Justice Strickland has excluded from the divisible pool of assets the matrimonial home which was owned by a discretionary family trust established and controlled by the father of a 42 year old man in a contest with his 33 year old wife. The wife alleged the trust was a ‘piece of machinery’ designed to keep the property ‘from the reach of the Family Court’ and the fact that her husband’s siblings were secondary beneficiaries of the trust was ‘camouflage’. In his evidence, the husband’s father admitted that one of his motivating factors in establishing the trust was to keep the property within those trusts as far away from the Family Court as possible. The trust purchased a residential property near the husband’s place of work for $920,000. It was rented out by the trust for nearly 4 years before the husband and wife took up residence there, at a lower rent, and carried out renovations. The husband conducted himself as though he was the owner of their home and the wife harboured that view.

Section 106B(1) of the Family Law Act 1975 provides that:

In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.

Strickland J’s judgment peruses various judicial descriptions of a sham, most notably that:

“all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating” Snook v London and West Riding Investments Ltd [1967] All ER 518 Diplock LJ at 528

Strickland J noted that there is some uncertainty about whether a sham required, as an element, the deliberate deception of third parties, such as fraud. His analysis continued on the basis that the particular sham alleged was not as pejorative as fraud, “but still apt to deny the critical step in the appellant’s case”. The test for the Court being to compare the evidence of intention in the document against evidence of real intention. For this, Strickland cited Justice Kirby in Raftland Pty Ltd as Trustee of the Raftland Trust v Commissioner of Taxation [2008] HCA 21; (2008) 246 ALR 406

and

“Neither the complexity nor the artificiality of a transaction, nor any circularity evident in it, nor the apparent lack of commercial or economic sense will of themselves, alone or in combination, necessarily warrant a conclusion that a transaction constitutes a sham.”

Strickland J observed that:

“Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.”

If a requirement for a sham was to find a ‘common intention’ of the parties to the transaction to mislead others, such an finding would be practically ruled out in the typical situation of a family trust because the essential parties are a settlor (often accountant, or a solicitor as in the present case) and the trustee. Strickland J reviewed authorities finding it was possible for a unilateral sham to emerge over time by the transaction masking a departure from the original intent and without involving any party to the marriage. He also noted the narrow operation of the doctrine in New Zealand where the NZ Court of Appeal in Official Assignee in Bankruptcy in the Property of Reynolds v Wilson and Harvey and Anor[2008] NZCA 122 gave safe harbour from sham for any trust valid at its inception, except, possibly, only in relation to a portion of property subsequently transferred into the trust.

From this Strickland J deduced that regardless of the husband’s conduct, for there to be a sham, there must be ‘evidence of an intention on the part of the husband’s father’ to confuse the legal terms of the trust with the ‘actual entitlements of the husband’. Essentially, Strickland found that the wife did not have enough evidence to establish an intention on the part of the husband’s father that would amount to a sham.

This case highlights the enduring strength of family trusts in estate planning to achieve asset protection for a client’s bloodline. The message for family lawyers is that to set aside a properly established and administered family trust, which is not legally controlled by a party to the dispute, requires evidence close to fraud. Just how close, Strickland J did not say.