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Sutton v Public Trust [2015] NZHC 1844 (6 August 2015)

Last Updated: 18 August 2015

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2014-485-11263 [2015] NZHC 1844

_{JUDGMENT OF SIMON FRANCE J}

Introduction

[1] By a will dated 28 August 2003, the testator Mr Ernest Sutton, in the event that his wife predeceased him (as occurred), directed that his residuary estate be divided amongst his three children:

... living at my death. However if this gift to any such beneficiary does not take effect THEN any benefit to which that beneficiary would have been entitled is to be taken equally by those of his or her children who are living at my death.

SUTTON & ORS v PUBLIC TRUST [2015] NZHC 1844 [6 August 2015]

[2] At the time of his death, Mr Sutton’s three named children were all living. However one, Mr Warren Sutton, was at the time an undischarged bankrupt. Section 102(1)(a) of the Insolvency Act 2006 appears to govern the situation. It provides:

(1) Between the commencement of bankruptcy and discharge of the bankrupt,—

(a) all property (whether in or outside New Zealand) that the bankrupt acquires or that passes to the bankrupt vests in the Assignee without the Assignee having to intervene or take any other step in relation to the property, and any rights of the bankrupt in the property are extinguished; ...

[3] The children of Mr Warren Sutton dispute the applicability of s 102. They contend:

(a) that, on the plain meaning of the words, the gift has not “taken effect” as provided in the will and therefore their father’s share should go to them;

(b) alternatively, that the meaning of the words is ambiguous and uncertain as those terms are used in s 32(1) of the Wills Act 2007. This being so, the Act allows recourse to extrinsic evidence of the will-maker’s intention. When this is done, it becomes clear the testator intended the gift to his son to fail if the son were bankrupt; and

(c) alternatively, pursuant to s 31 of the Wills Act 2007, the Court should correct the will because it does not give effect to the will-maker’s instructions.

The extrinsic evidence (if able to be considered)

(a) Concerning the testator’s general intentions

[4] The background to the issue is that Mr Warren Sutton, the testator’s son, is a businessman who has experienced highs and lows. The narrative presented through affidavits filed by him, and his wife, is that during the period 1998 to 2001, he was at

risk of being made bankrupt. An investment had failed, and Mr Sutton was the last person standing in relation to trade debts and secured borrowings concerning which he had given personal guarantees.

[5] Against that background there were discussions with his parents. These discussions were made more pressing due to a health scare involving the testator. Mr Sutton, the sole deponent in relation to this period, says:

The culmination of my father’s health and my precarious financial position prompted the discussions around provisions for my share of their estate being able to pass to my children. The discussions were of a general nature and my father said he would ensure that provisions were made to enable my share of their estate to pass to my children.

[6] The affidavit dates these discussions as around 1999 to 2001.

[7] The history of the testator’s wills around this time is that he made a will in July 1992 (the 1992 will), then a new one in May 2001 (the 2001 will) and then a further one in August 2003 (the 2003 will). The 2003 will is the operative will. The plaintiffs’ case focuses on the 2001 will and changes made then which were carried through unchanged into the 2003 will. The 2001 changes are submitted to have been motivated by the discussions with his son. It is also submitted that at the least it can be inferred that the changes in 2001 induced in the testator a belief that he had provided for the bankruptcy contingency. The change in question which underlies this submission was made to the residue clause which in, the 1992 will, read:

... equally among my children [– X, Y and Z –] living at my death. However, if any of them die before me leaving a child ... (emphasis added)

[8] In 2001 this became:

... equally among my children [– X, Y and Z –] living at my death. However if this gift to any such beneficiary does not take effect THEN any benefit to which that beneficiary would have been entitled is to be taken equally ... (emphasis added)

[9] Evidence from the Public Trust employee responsible for the 2001 will says the new wording simply reflects a change from 1992 to 2001 in the standard wording used by the Public Trust. The 2001 will wording was common to Public Trust wills.

[10] Returning to the family narrative about the testator, there is no other information about discussions surrounding the 2001 and 2003 wills. The evidence instead moves forward to 2009 when, after some buoyant and successful years, Mr Warren Sutton was again in fiscal difficulty. In July 2010 he was adjudged bankrupt.

[11] Mr Sutton recalls discussing his father’s estate with his father at the time he received formal notice of his bankruptcy. His father expressed the view that he had dealt with it and the grandchildren would be substituted if he should die.

[12] Mrs Pauline Sutton, Warren Sutton’s spouse, gives evidence of a conversation around this time. Mrs Sutton says that when the topic arose, the parents were shocked at the idea of the money going to the Official Assignee. They asked what they could do to prevent that from happening.

[13] Although this observation appears to suggest steps had not yet been taken, Mrs Sutton records a second conversation about a month later. It is said that the testator said he had looked into it and was relieved to see the situation was covered. The testator showed Mrs Sutton a copy of the 1992 will and explained his current will, of which he did not have a copy, was different and the new will did not require his children to have died before the grandchildren could take. Mrs Sutton believed he had sought professional clarification on the point.

(b) Evidence about the testator’s instructions

[14] The testator’s wills were all prepared for him by the Public Trust. Affidavits were filed by the Public Trust employees responsible for the preparation of the 2001 and 2003 wills. The only contemporaneous record of instructions was a standard Public Trust questionnaire which is routinely completed whenever a person comes in to request a will. The questionnaire for each of 2001 and 2003 is available. Both drafters otherwise depose to no independent recollection of the instructions.

[15] The 2001 questionnaire discloses no specific reason for revisiting the existing

1992 will. The questionnaire is a computer form in which the Public Trust employee will check the appropriate box, and insert the necessary information. As regards the gift to his children the questionnaire states:

It is usual to state that if any of these beneficiaries should die before you leaving children their share is to pass equally to those children.

The options are to say this is wanted, or not required. The “wanted” box is checked. Finally it can be observed there is a “Notes” section where specific matters can be recorded. In 2001 there were none.

[16] As noted, the drafter of this will has no independent recollection. Her evidence is that if she had received instructions concerning bankruptcy, and the desire to give directly to grandchildren should that occur, there would have been a record kept of this. She would have then sought advice from the legal section. Her practice in this regard was “invariable”. It is also noted that if the will provided for direct gift to grandchildren, thereby bypassing a child, the drafter always required the testator to make a note explaining why. This would then be available for Family Protection Act 1955 purposes.

[17] Finally, the deponent records that the meaning of the will contended for by the plaintiffs is not her understanding of the meaning. Mr Kelly objected to this, but accepted it was admissible to the extent it clarified that the drafter did not intend the clause to cover the bankruptcy matter in issue, nor believe that it did cover it.

[18] As regards this evidence it can be observed that the will itself, and the contemporaneous documents that are available, disclose no obvious reason for a new will other than the prudent step of updating a 10 year old will. Three changes were made from the 1992 will:

(a) the residuary provision leaving the estate to his widow was made conditional on her surviving him by 30 days. This is undoubtedly a Public Trust driven change. It is not sensible to think the testator would have made a new will for this reason. (I observe I was given

no evidence concerning whether the testator’s wife altered her will at

the same times.);

(b) Mr Sutton directed that he be cremated. Whilst this change might be a reason for a person to update his or her will, it is fair to observe the question of cremation is specifically raised in the questionnaire, so that could equally have prompted the change; and

(c) the wording change to the residue clause previously outlined was made. As noted this was the product of a change in the standard form.

[19] The situation concerning the 2003 will is clearer in terms of what lay behind it. There were changes to the way in which the estate was left to his widow, and specific provisions concerning a mortgage arrangement with another child. The will also reflects a change in how the family home was owned.

[20] As regards the bankruptcy issue, the gift over to the living children of any deceased child was unchanged from the 2001 version. The evidence of the drafter was the same as in 2001. He believes that if there had been instructions concerning bankruptcy, a specific entry would have recorded that. Likewise there would have been an express note made for Family Protection Act purposes had there been a potential by-passing of a direct child. This deponent also notes the clause in issue to be a standard Public Trust clause, and records he did not understand it to have the effect contended for by the plaintiff.

(c) Conclusions on the evidence

[21] No one was subject to cross-examination. None of the evidence is incredible on its face so I must proceed on the basis that the deponents have endeavoured to recall matters honestly and accurately.

[22] Looking at the testator’s intention, it seems clear that for whatever reason he believed in 2010 that the existing wording of the 2003 will covered the bankruptcy situation. The evidence does not satisfy me as to the reasons for that belief, which on its face is a surprising belief. In that regard I accept the evidence of the Public

Trust witnesses to the effect that had the testator raised the bankruptcy issue with them, there would have been a record of it. This accords with common sense since both witnesses note it would be, in their experience, an unusual request that required specific consideration. It is also relevant that neither drafter thought the standard wording would cover the bankruptcy situation. This reinforces that they would have considered it necessary to get specific assistance.

[23] Mr Kelly submits that this conflict between the testator’s understanding of the meaning of the will, and his apparent instructions to the Public Trust as explained by the will drafters, can be reconciled by accepting that the testator must have tried to convey the specific instruction but it was not understood. The instruction would have been that if at the time of his death a child was bankrupt, then that child’s share should go to the grandchildren. It is submitted there is no logical reason why the testator would tell his family he was attending to it, but not do so.

[24] I do not accept this. I agree it is odd that the testator should say in 2001 he would deal with it and then seemingly not do so, but that appears to be what has happened. The family deponents note that the testator did not find it easy to talk about such matters. Perhaps this overwhelmed him at the time. It cannot be known, but I do not accept it can be inferred that he raised the point and the will drafters somehow misheard it or misunderstood it. It is not a point that is difficult to explain, especially for someone who has apparently had specific family discussions about it. I have no doubt that if Mr Sutton had raised it with the Public Trust it would have been recognised by the drafters as something to be addressed, would have been noted in the questionnaire, and would have been actioned in the will or otherwise further discussed with the testator.

[25] Nor is it possible to infer that the bankruptcy issue was the reason for requesting a new 2001 will. I accept that it was an issue discussed within the family at the time and that no other reason for a new will is apparent. But this cannot overcome the reality that the testator, when it came to the crunch, did not in fact raise it with the Public Trust. If his son’s bankruptcy was the reason for organising to see Public Trust about his will, Mr Sutton did not follow through on it.

[26] The change of wording in 2001 is not explained by any bankruptcy instructions. Uncontested Public Trust evidence is that it was new standard wording created by the Trust’s “Wills Expert System” which was introduced around 1999. It is not a change in wording to which any motivation or underlying instruction can be attached.

[27] What of the evidence of Mrs Sutton that in 2010 the testator said to her that he believed the will covered the situation? Mrs Sutton said the testator said he had looked into it. It is difficult to know what he meant by this. The evidence is that Mr Sutton did not have a copy of his 2001 or 2003 will.

[28] An inference is that he had taken advice but if so, from whom is not known. He made an appointment to see the Public Trust in September 2010, but the Public Trust evidence is that the meeting never occurred. Mr William Sutton queries whether the Public Trust record keeping is correct on this but I see no reason to doubt it. Indeed the person with whom the testator was to meet deposes that she knew Mr Warren Sutton and that had the topic of his bankruptcy come up, she would have remembered it.

[29] More importantly there is no basis on which to think Public Trust would be the source of the testator’s understanding – none of its employees depose to believing the clause has the effect the testator thought it did. It is not possible to take this matter further as to why he had this belief. I accept that in 2010 the testator said what he said, but how he came to believe that is not clear. I reject the proposition that the Public Trust in 2001, 2003 or 2010 may have been the source.

Issue one and two – the meaning of the words

[30] It is convenient to consider together the first two contentions. These are that on an ordinary reading of the words the gift has not taken effect, or alternatively the words are unclear and ambiguous. The latter proposition stems from s 32 of the Wills Act 2007 which provides:

32 External evidence

(1) This section applies when words used in a will make the will, or part of it,—

(a) meaningless; or

(b) ambiguous on its face; or

(c) uncertain on its face; or

(d) ambiguous in the light of the surrounding circumstances; or

(e) uncertain in the light of the surrounding circumstances.

(2) The High Court may use external evidence to interpret the words in the will that make the will or part meaningless, ambiguous, or uncertain.

(3) External evidence includes evidence of the will-maker's testamentary intentions.

(4) The court may not use the will-maker's testamentary intentions as surrounding circumstances under subsection (1)(d) or (e).

[31] It is necessary for the plaintiff to establish ambiguity or uncertainty before recourse to the extrinsic evidence can be had.

[32] Mr Kelly submitted that the meaning of the words is to be assessed from the viewpoint of a testator sitting in his or her arm-chair.¹ It was common ground between the parties that the recent decision of Marley v Rawlings authoratively states the correct approach. There, Lord Neuberger observed:²

19. When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party’s intentions. In this connection, see Prenn at

1384–1386 and Reardon Smith Line Ltd v Vngvar Hansen-Tangen

[1976] 1 WLR 989, per Lord Wilberforce, Bank of Credit and Commerce International SA v Ali [2001] UKHL 8; [2002] 1 AC 251, para 8, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21–30.

¹ _{Boyes v Cook (1880) 14 Ch D 53 at 56.}

² Marley v Rawlings [2014] UKSC 2.

20. When it comes to interpreting wills, it seems to me that the approach should be the same. Whether the document in question is a commercial contract or a will, the aim is to identify the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context. As Lord Hoffmann said in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2004] UKPC 6; [2005] 1 All ER 667, para 64, “No one has ever made an acontextual statement. There is always some context to any utterance, however meagre.” To the same effect, Sir Thomas Bingham MR said in Arbuthnott v Fagan [1995] CLC 1396, that “[c]ourts will never construe words in a vacuum”.

...

23. In my view, at least subject to any statutory provision to the contrary, the approach to the interpretation of contracts as set out in the cases discussed in para 19 above is therefore just as appropriate for wills as it is for other unilateral documents. This may well not be a particularly revolutionary conclusion in the light of the currently understood approach to the interpretation of wills (see eg Theobald on Wills, 17^th edition, chapter 15 and the recent supplement supports such an approach as indicated in RSPCA v Shoup [2010] EWCA Civ 1474; [2011] 1 WLR 980 at paras 22 and 31). Indeed, the well known suggestion of James LJ in Boyes v Cook (1880) 14 Ch D 53, 56, that, when interpreting a will, the court should “place [itself] in [the testator’s] arm-chair”, is consistent with the approach of interpretation by reference to the factual context.

[33] It can be observed that the testator’s arm-chair approach is seen to be consistent with the approach outlined in para 19 of the cited passage. I am content to apply that approach.

[34] I first observe that there were no background facts known to the testator that might be of significance to the interpretation of the clause in issue. The evidence is that at the time the will was made in 2003, Mr William Sutton’s finances were in good health. The threat of bankruptcy had passed in 2001, and from 2001 to 2007 he had a high income. Mr Sutton further notes that he established a trust for the purposes of acquiring investment property, and that between 2003 to 2004 the assets of the Trust grew considerably. There were accordingly no circumstances existing as regards the testator’s children that objectively might have needed attention, save the issue of a debt owed to him by another son. This matter was in fact specifically addressed in the will.

[35] I do not consider the circumstances existing at the time of the 2001 will, although only two years prior, affect matters. I accept issues of his son’s bankruptcy were a topic of conversation and concern, but for the reasons given, these concerns did not translate into any specific drafting instructions at the time. Even assuming the testator had a particular understanding of the effect of the clause in the 2001 will, that cannot colour the interpretation of its plain meaning.

[36] Turning to that meaning, the general context is a traditional provision about the residuary estate. The gift to the children only applies to those “living at the testator’s death”. This condition is then immediately followed by a provision dealing with what happens if the gift to the children does not take effect. The structure and context suggests that the further provision is intended to apply when the pre-condition has not been met – namely, one of the children is not living at the time of the testator’s death.

[37] The issue motivating these proceedings arises only because of the consequences of one of the children being an undischarged bankrupt. In such cases, as s 102 of the Insolvency Act provides, property acquired by the bankrupt automatically vests in the Assignee. It is this automatic vesting that Mr Kelly relies upon for his submission the gift has not taken effect. However, s 102 only applies when there is property that has passed to the bankrupt, or which the bankrupt has acquired. In the present situation s 102 only applies if the gift in the will has taken effect. Otherwise there is no property to which it can attach. That being so, it cannot then be said that if s 102 applies, the gift has not taken effect. That would be wholly circular.

[38] I accept that the lack of control which bankruptcy statutorily imposes on a person distinguishes the situation from a beneficiary who may, in practical terms, have no choice as to what to do with the money when received. Conceptually the latter still has a choice, even if that choice is fettered by, for example, contractual obligations. This difference does not, however, alter the plain meaning of the words

– Mr William Sutton acquires his share under the will. It is just that other circumstances then control what happens to the money.

[39] The interpretation proffered by the plaintiffs seeks to define “take effect” by reference to whether the intentions of the testator have been met. The argument is that if the money is “lost” to the family because it passes immediately to the Assignee, it is not an effective gift because the testator wanted the money to stay in the family. This is not a permissible approach – the plain meaning is to be determined, as Lord Neuberger observes, ignoring subjective evidence of the testator’s intentions.

[40] It is also relevant to note the money is not somehow “lost”. It passes to the Assignee but as a credit for Mr Sutton. It is applied to discharge his debts. There is no sense in which he has not received the benefit of the money. In some cases the sum may be sufficient to discharge all obligations and lead to a discharge of bankruptcy. One would hardly argue in that case that the gift has not been effective.

[41] No ambiguity exists. The gift takes effect if the beneficiary is alive and his share can be advanced to him. That is what can happen here. Section 102 of the Insolvency Act does not alter that but in fact reinforces it since it is applicable only if the gift takes effect. For these reasons the first two bases advanced by the plaintiffs fail.

Correction?

[42] The plaintiffs’ alternative application is for correction of the will under s 31 of the Act. This power to correct is limited to situations where the will does not carry out the will-maker’s intention due either to:

(a) clerical error; or

(b) because it does not give effect to his instructions.

[43] I am grateful for counsel referring me to various authorities. However, I do not consider any analysis is required. For reasons already given, I am not satisfied the testators gave any instructions about wishing the will to protect his son’s share should the son be bankrupt at the time of his death. Indeed I consider the opposite to

be the case; the evidence establishes no such instructions were given. Accordingly, this application must also fail.

Conclusion

[44] The applications are declined.

[45] The gift to the testator’s son has taken effect, and there is no ambiguity concerning the meaning of the words. The gift takes effect when the son receives his share. That is unaffected by the fact that an unrelated statutory provision affects what the beneficiary can do with his share.

[46] The evidence does not establish that the terms of the will are contrary to the

testator’s instructions.

[47] On the matter as known to me, there is no reason why scale costs should not follow the event. The costs would be payable to the Official Assignee who carried the burden of defending the proceeding. Memoranda may be filed if there are costs

_{matters not known to me that require further consideration.}

_{Simon France J}

Solicitors:

Greg Kelly Law Ltd, Wellington