Michael O’Sullivan appears in High Court in Naylor v Barlow [2019] EWHC 1565 (Ch)

As the judge in Naylor v Barlow commented, the lesson to be drawn from this case is that will draftsmen should be careful about how they frame conditions applying to testamentary gifts.

In particular, they should consider from when a time limit for compliance with a condition should run  – whether from death or from the date when the donee or any substituted donee is given notice of the condition.

They should also consider whether the executors should be obliged to give notice of the condition to the donees.

The case concerned the construction of the will of a farmer. The testator farmed in partnership with his wife and two of their sons. As sole freehold owner, he granted an agricultural holding tenancy to the partnership at an annual rent. He and his wife had two other children who were not actively involved in the farm.

By clause 3 of his will, the testator gifted the farm to his wife and the two sons as tenants in common in equal shares. However, he subjected the gifts to his sons to a condition that they pay within nine months of his death the sum of £15,000 to each of the other two children, so that each son should pay a total of £30,000. The gift went on to provide that if either son should fail to comply with the condition, then that son’s conditional interest in the farm would be devised to the other two children as tenants in common.

By clause 4 of his will, the testator gave his residue to his wife absolutely.

His wife’s will, which was made on the same date as that of her husband,  provided for the whole of her estate to pass to her husband if he should survive her for one month and, failing that, for the whole of her estate to pass to her trustees upon the usual trusts for sale and conversion and (after payment of her debts, funeral and testamentary expenses) for the residue to be divided equally between her surviving children, with an express substitutionary clause in favour of the issue of any deceased child.

One of the two sons in the farming partnership died before the testator. He died intestate and letters of administration to his estate were taken out by his widow. They had two children, who were the first and second defendants in the action.

After the testator died in 1992, the other son in the partnership, who was the fourth defendant, failed to comply with the condition in clause 3 of the will as to payment of £30,000 to his siblings. It was accepted that his share therefore passed to them under the terms of the gift in clause 3.

However, the first and second defendants were not informed by the executors within the nine-month period from the date of the death of the testator of the terms of the gift in clause 3.

Following the testator’s death, the fourth defendant carried on farming in partnership with his mother until she died in 1997. Thereafter, he remained in possession and failed to pay any rent under the agricultural tenancy. A notice to quit was served on him which expired in 2002. However, for family reasons, no steps were taken by the executors to seek possession of the farm. Eventually in 2015 the farm was sold by consent.

The claimant trustees of the testator’s will wished to distribute the cash funds in their hands. They were also trustees of the wife’s estate. They proposed a scheme of division which assumed that the deceased son’s share had passed to his siblings under the terms of the gift. One of those siblings had died in 2013. This would have resulted in the funds in the hands of the trustees being divided as follows: 5/12ths to the surviving sibling; 5/12ths to the deceased sibling’s estate; 1/12th to the fourth defendant; and 1/24th each to the first and second defendants.

The first and second defendants disputed the claimants’ proposed scheme of division. At first they argued that their deceased father’s share had passed into residue and that they took, via their grandmother’s estate, a greater share. Subsequently they changed tack and argued that they took their father’s share by substitution under section 33 of the Wills Act 1837 (WA 1837) and because the condition was a condition subsequent that was impossible for them to satisfy as they were never told of it, they took the gift free of the condition.

The claimants took counsel’s opinion and were advised that WA 1837, s 33 applied to the gift but that the gift to the first and second defendants failed due to their failure to satisfy the condition as to payment to their father’s siblings within nine months of the death of the testator.

The first and second defendants did not accept counsel’s conclusion and maintained their arguments. As a result the claimants issued a Part 8 claim form seeking the court’s determination of the proper construction of the testator’s will and associated directions.

The first question was whether the gift to the son who predeceased the testator failed completely or whether WA 1837, s 33 applied. At trial, the claimants and the first and second defendants agreed that WA 1837, s 33 applied. The judge, HHJ Hodge concurred.

WA 1837, s 33 provides:

‘Gifts to children or other issue who leave issue living at the testator’s death shall not lapse.

(1) Where—

(a) a will contains a devise or bequest to a child or remoter descendant of the testator; and

(b) the intended beneficiary dies before the testator, leaving issue; and

(c) issue of the intended beneficiary are living at the testator’s death,

then, unless a contrary intention appears by the will, the devise or bequest shall take effect as a devise or bequest to the issue living at the testator’s death.

[…]

(3) Issue shall take under this section through all degrees, according to their stock, in equal shares if more than one, any gift or share which their parent would have taken and so that no issue shall take whose parent is living at the testator’s death and so capable of taking.’

HHJ Hodge cited with approval the decision of Timothy Fancourt QC sitting as a deputy High Court judge in Hives v Machin [2017] EWHC 1414 (Ch). In that case the deputy judge pointed out at paragraph 25 there was no requirement that the will should express in particular terms an intention contrary to WA 1837, s 33, or that there should be any reference to the section. Nor was it necessary to demonstrate that a conscious decision had been taken to exclude the effect of the section. What appeared to be necessary was for the ‘language of the will to show that the devise or bequest in question should not take effect, in the specified circumstances, as a devise or bequest to the living issue of the deceased beneficiary. Thus, an express provision for a different substitution (or none) in the event of death would seem to be sufficient. But the mere fact that the will would otherwise have a different effect will not suffice, as that is merely the trigger for the application of section 33.’

At paragraph 27, the deputy judge said that the question was not simply what the gift in the will meant, but whether the will showed an intention that WA 1837, s 33 should not have effect.

HHJ Hodge in the present case agreed and emphasised that the contrary intention had to appear from the will itself and it was not permissible to find the contrary intention by reference to extrinsic evidence such as the will of the testator’s wife.

The parties were agreed that the condition was a condition subsequent rather than a condition precedent. Again, the judge agreed, citing the decision of the Court of Appeal in Greenwood, Re [1903] 1 Ch 749 which was clear authority for the proposition that if a condition attached to a testamentary gift was capable of being construed either as a condition precedent or a condition subsequent, the court would prefer the latter construction.

The next question was whether the first and second defendants, as substituted donees, became subject to the condition. The judge held that the condition did apply to them and that the effect of WA 1837, s 33 was that they stood in the shoes of their deceased father for all purposes. The judge referred to the decision of Etherton J in Ling v Ling [2002] WTLR 553, [2001] All ER (D) 322 (Nov) where he expressed the view, at paragraph 33, that a substituted beneficiary under WA 1837, s 33 was subject to the same contingency (in that case, attaining the age of 21) as his parent, who predeceased the testator, would have been. He based this view on the wording of WA 1837, s 33, observing: ‘Section 33(2) operates by way of including issue of the deceased child in the class, and limiting, by subsection (3), their interest to the gift or share which their parent would have taken. The issue within the class must satisfy the contingencies determining the date of distribution, as much as any other member of the class.’

At paragraph 16, HHJ Hodge stated:

‘The reality is that where a testator clearly intends a gift to be subject to a condition subsequent, and statute intervenes so as to save the gift and pass it to the beneficiary’s issue so as to avoid the effect of the doctrine of lapse in the event of the named beneficiary predeceasing the testator, there is every reason for Parliament to have provided that the substituted gift should be subject to precisely the same conditions as that subject to which the deceased father or mother would have taken. That seems to me to be the clear rationale and effect of s 33(3). It would be an excessive, intrusive and unwarranted interference with the principle of testamentary freedom and autonomy for the court to construe s 33 so to permit the issue of the deceased beneficiary of a testamentary gift to take free from any condition that attached to that gift in the hands of their deceased parent. The testator never intended either of the two sons named in clause 3 of his will to take their one-third share in the farm free from the obligation to make payment to their other two siblings … In my judgment, the substituted beneficiaries step into the shoes of the original deceased beneficiary for all purposes.’

The first and second defendant argued that the condition did not take effect because, having had no knowledge of it, it was impossible for them to comply with it. The judge held that none of the the cited authorities assisted their argument and he applied the case of Astley v Earl of Essex (1874) LR 18 Eq 290, which was relied on by the claimants. The judge stated at para 20:

‘I do not accept [the first and second defendants’] submission that that case has no application in the present context because it was a case concerning a contingent remainder. The words of Sir George Jessel MR at p 297 are quite general: “The principle is that a person who takes by gift under a will cannot plead want of knowledge of the contents of the will as an excuse for not complying with its provisions.” Similarly, the decision of Sir John Wickens V-C in Hodges’ Legacy, Re (1873) LR 16 Eq 92 is authority for the further proposition (recorded in the same paragraph of Williams on Wills) that “a legatee is not entitled to notice of the condition, unless the terms of the condition expressly provide that an interested party is to give him notice thereof”. That was a particularly harsh case because the beneficiary there had failed to execute a release in time because he had been serving in the army in India at the time of the Mutiny in 1857. If any lessons are to be learned from the present case, it is that the draftsman of a will incorporating a condition along the lines of clause 3 should consider expressly making the time for compliance run only from the time of notification of the condition to the relevant beneficiary.’

The judge held that ignorance of the condition did not make it impossible or incapable of fulfilment in the sense required in the authorities which first and second defendants had relied on. The judge commented:

‘The law also draws a distinction between the refusal to fulfil a condition, or neglecting to do so, and a failure to do so. It does so as a matter of the true construction of the relevant condition and in order to promote the free expression of testamentary wishes and testamentary autonomy. I should emphasise to the unsuccessful first and second defendants that the failure of their case is not simply due to a slavish adherence to nineteenth century case-law precedents but to what I consider to be a principled application of the common-sense principles which they encapsulate.’

Consequently the judge held that the deceased beneficiary’s share did indeed pass to his siblings due to the non-performance of the condition.

There were some subsidiary issues. The judge held that milk quota which had formerly existed had passed under clause 3 of the will with the land and did not pass as part of residue. He cited Court of Appeal in Harries v Barclays Bank plc [1997] 2 EGLR 15 and the Northern Irish case of Crossey and others v Armour and another [2008] NICh 4. He also held that the fourth defendant’s 1/12th share could be applied by the claimants in satisfaction of the debt owed by him in respect of unpaid rent and mesne profits. He accepted the claimants’ submission that limitation barred the remedy and not the right and that as the claimants were holding the fourth defendant’s share they could in effect apply it in reduction of his debt.