High Court of Australia Dixon C.J. McTiernan, Williams, Fullagar and Taylor JJ. Duncan v Cathels [1956] HCA 56 ORDER Appeal allowed. Cross-appeal dismissed. Delete declarations in decretal order. In lieu thereof insert a declaration that upon the true construction of the trusts declared in the indenture of settlement made by John Fenwick deceased on 22nd June 1900 and in the events which have happened the share or interest of Bisset Fenwick deceased is now vested in the executors of his will. Costs of all parties of the appeal and cross-appeal as between solicitor and client to be paid out of the said share or interest. Cur. adv. vult. The following written judgments were delivered:— Oct. 5 Dixon C.J., McTiernan, Williams and Taylor JJ. This is an appeal by one of the executors of Bisset Fenwick deceased from part of a decretal order of the Supreme Court of New South Wales in Equity made by Myers J. in an originating summons instituted to construe the trusts of an indenture of settlement executed by John Fenwick on 22nd June 1900. The part of the decretal order appealed from is a declaration that upon the true construction of that indenture and in the events that have happened the share or interest of Bisset Fenwick is not now vested in the executors of his will. The appellant claims that there should have been a declaration that the share of Bisset is now vested in the executors of his will or alternatively that subject to the defendant Charlotte Dunkley receiving the income of such share during her life the estate of Bisset is entitled to the corpus of the share. The court also declared that the estate of the settlor is now entitled to such share and from this declaration there is a cross-appeal by Charlotte Dunkley claiming that his Honour should have declared that she is solely entitled to the corpus of the share. The indenture of settlement in question was executed by the settlor John Fenwick on 22nd June 1900. At that time he was married, his wife being Pauline Fenwick, and he had eight children—Andrew, James, Peter, Adolph, the cross-appellant Charlotte (now Mrs. Dunkley), Thomas, all of whom were adults, and Robert and Bisset, who were minors. The settlor executed a will on the same day which contained trusts identical with those of the indenture. He died on 29th January 1901. His widow died on 8th June 1924. Bisset died unmarried on 30th November 1954. The shares given to the children other than the shares of Charlotte and Bisset have been paid or transferred to them and only the shares of Charlotte and Bisset are now in the hands of the trustees of the indenture. By the indenture the settlor declared that he held the assets there mentioned comprising his interest in the business of tug proprietor carried on in partnership with his two sons Andrew and James at Sydney and Newcastle, for the benefit of the persons therein mentioned and not for his own benefit. Subject to his obligation to carry out his duties as a partner he declared that he held the trust property upon trust as to three-elevenths of his interest in the business for the benefit of his wife Pauline for her life and after her death as to these three-elevenths and immediately after the execution of the indenture as to the remainder of the interest upon trust for such of his eight children as being males should attain the age of twenty-one years or being females should attain that age or marry in equal shares subject to the provisions and powers thereinafter appearing. The powers and provisions thereinafter appearing relate only to the shares of Charlotte, Peter and Bisset. The trusts of the shares of Peter and Bisset are declared partly by reference to the trusts of the share of Charlotte. The settlor directed that the share of Charlotte should be held upon trust with her consent in writing for her life and after her decease in the discretion of the trustees to convert the same into money with power to postpone conversion and to invest the proceeds of sale as therein mentioned and upon further trust to pay the annual income of her share or of the moneys arising therefrom or of the securities whereon the same should be invested described as the settled fund to Charlotte during her life for her sole and separate use with restraint upon anticipation and immediately after her decease as to as well the capital of the settled fund as the annual income thenceforth to accrue due from the same in trust for all or any one or more of the children or remoter issue of Charlotte such remoter issue being born in her lifetime and generally in such manner as she should by deed with or without power of revocation or by her will appoint and in default of such appointment and subject to any partial appointment in trust for her children who either before or after her decease being sons should attain twenty-one or being a daughter should attain that age or marry such children if more than one to take in equal shares. (It was then provided that if there should not be any such child of Charlotte she should have a general appointment by will and that subject to any partial appointment her share should be held in trust for her next of kin. But this provision is not incorporated by reference in the trusts of the shares of Peter and Bisset.) The settlor directed that the shares of Peter and Bisset should be held upon the same trusts for conversion and investment as were thereinbefore declared with reference to Charlotte and upon further trust to pay the annual income of the settled funds to Peter and Bisset respectively until they respectively should die or become bankrupt or do attempt or suffer some act or thing whereby the settled fund or the income thereof should be or be liable to be wholly or partly transferred conveyed assigned charged in execution or otherwise encumbered and immediately after the death of Peter and Bisset respectively or after the bankruptcy or doing or attempting or suffering of any such act or thing then upon the same trusts for the benefit of the wife until she remarried or died and then of the children or remoter issue of Peter and Bisset respectively as were thereinbefore provided in the case of the children or remoter issue of Charlotte. Then without any break except so far as one is made by the use of capital letters it was provided always that if and so long as there was no person entitled to receive the income of the shares of Peter and Bisset respectively under the trusts thereinbefore declared the same should be paid to the then survivors of the eight children of the settlor in equal shares. The appellant contends that the effect of the direction in the indenture that the trustees are to hold the trust property, subject as to part thereof to the life estate of Pauline, upon trust for such of the eight children of the settlor as being males shall attain the age of twenty-one years or being a female shall attain that age or marry in equal shares is to give to each of these children who attaining that age or being a female marries an absolute share in the settled property. In the case of Charlotte, Peter and Bisset, their shares are given to them subject to the provisions and powers thereinafter appearing. But it is contended that the effect of these provisions and powers is simply to engraft on to their initial absolute gifts a series of limitations which do not cut down its absolute nature except to the extent necessary to give effect to such of the limitations as became operative. In other words the appellant relies upon the principle of construction known as the rule in Lassence v. Tierney [1] , the now classic statement of which is contained in the speech of Lord Davey in Hancock v. Watson [2] . It is unnecessary to set out the passage again because this was done and the principle fully discussed in the very recent decision of this Court in Russell v. Perpetual Trustee Co. (Ltd.) [3] . His Honour was of opinion in this case, as he was in that case, that where shares are given in terms which by themselves would create an absolute disposition but are at the same time made subject to a series of limitations there is no absolute gift in the first instance and the principle is inapplicable. That view was fully examined in Russell's Case [3] . and its fallacy exposed. The present case is really a stronger case in favour of the application of the principle than Russell's Case [3] because in that case the residue was in the first instance divided into 200 parts and there were then ten separate sets of trusts relating to various quotas into which the 200 parts were divided for this purpose. Each set of trusts was therefore severable from the others. But in the present case the initial trust gives an equal share of the trust property to each of the eight children and it is clear that five of these shares are given absolutely. The shares of Charlotte, Peter and Bisset are therefore given absolutely in the first instance. They are each shares directed to be separated from the rest of the trust property and it is these separated and segregated parts of the original whole that are subjected to the subsequent limitations. To that extent but no further the absolute gifts to these three children differ from the absolute gifts given to the other children. Bisset did not marry or go bankrupt or alienate or encumber his share or attempt to do so and the only operative trust, reserving for the moment the possible effect of the proviso, was the trust to pay the income to him during his lifetime. All the other trusts failed. His Honour held that there never was an absolute gift to Bisset in the first instance and that upon his death there was a resulting trust to the estate of the settlor but in this respect his Honour fell into error. He should have held the gift to Bisset was an absolute gift in the first instance and have applied the rule in Lassence v. Tierney [1] . 1. (1849) 1 Mac. & G. 551 [41 E.R. 1379]. 2. (1902) A.C. 14, at p. 22. 3. (1956) 95 C.L.R. 389. 4. (1956) 95 C.L.R. 389. 5. (1956) 95 C.L.R. 389. 6. (1849) 1 Mac. & G. 551 [41 E.R. 1379]. It remains to refer to the proviso. It was contended for the cross-appellant that, subject to Bisset's life estate, there is no person entitled to receive the income of his share under the trusts thereinbefore declared and that since he died unmarried there never can be any one who could become entitled to receive this income. Accordingly Charlotte, who was the only child of the settlor to survive Bisset, is entitled to this income indefinitely and an indefinite gift of income is a gift of the corpus from which it is derived. But the gift of income under the proviso is not an independent but a substituted gift. It assumes that under the dispositions of income made by the anterior provisions a beneficiary might take but contemplates the possibility of events occurring in which there would be no such beneficiary or none qualified so to take. On the face of the proviso it seems clearly enough to be confined to the period during which the preceding gifts of income might operate and to have nothing to do with the disposition of corpus. As his Honour said: "it was only while those trusts relating to income or any of them could be operative that the settlor was intending to deal with income which, for the time being, no person might be entitled to receive". It was a gift of the income only capable of operating, in the events that happened, until the death of Bisset. It could have operated if Bisset had gone bankrupt. He might then have been unmarried. Until he died it would not be known whether he would marry or if he did whether he would have children. If he had not married, then during the period between his bankruptcy and death, there would have been no person entitled to receive the income of his share, and the person or persons entitled under the proviso would have taken the income in substitution for Bisset. But Bisset did nothing to deprive himself of his right to receive the income of his share during his life and the trusts of the proviso never became operative. The cross-appeal therefore fails. The appeal should be allowed and the cross-appeal dismissed. Fullagar J. I agree that this appeal should be allowed. The case seems to me to be a much clearer case than the recent case of Russell v. Perpetual Trustee Co. (Ltd.) [1] . 1. (1956) 95 C.L.R. 389. The initial gift contained in the settlement is "to such of my eight children as being males shall attain the age of twenty-one years or being females shall attain that age or marry in equal shares subject to the provisions and powers hereinafter appearing". So far as five of the eight children are concerned, no "provisions" or "powers" follow, and it is plain that the gifts to those five children are absolute gifts. But with respect to the shares of the other three children—Charlotte, Peter, and Bisset—"provisions and powers" do follow. Those relating to Charlotte's share are exhaustive in the sense that they cover every possible contingency, and there is, of course, no reason why effect should not be given to them. Those relating to the shares of Peter and Bisset, however, are not exhaustive in that sense, for there are several possible contingencies which they do not cover. In particular, they do not cover the contingency of Peter or Bisset dying unmarried and without having had any children. And in the case of Bisset—and it is with Bisset's share that we are concerned—that is the event which has in fact happened. In Russell's Case [1] , it seemed to me, as it seemed to Myers J., that it was quite impossible to say that there was, in any intelligible sense, an "absolute gift in the first instance". If a testator says, as in Hancock v. Watson [2] , "to Susan Drake I give two fifths of my residuary estate", then, whatever may follow, it is clear that there is an absolute gift "in the first instance". That case is covered by the well-known statement of the so-called rule in Lassence v. Tierney [3] , which is found in Hancock v. Watson [4] . But if a testator says "to Susan Drake, subject to the qualifications which follow, I give two fifths of my residuary estate", it seems to me equally clear that there is not an absolute gift "in the first instance". Such a case is not really covered by the language of Lord Davey in Hancock v. Watson [2] . It may, nevertheless, be governed by the rule in Lassence v. Tierney [3] , properly understood. For that rule really means, I think, that the gift "in the first instance" must prima facie be read as a gift subject only to such qualifications as do in fact follow and are in law capable of taking effect. If no qualification, or no qualification capable of taking effect, follows, then the initial gift takes effect without qualification—in other words as an absolute gift. 1. (1956) 95 C.L.R. 389. 2. (1902) A.C. 14. 3. (1849) 1 Mac. & G. 551 [41 E.R. 1379]. 4. (1902) A.C., at p. 22. 5. (1902) A.C. 14. 6. (1849) 1 Mac. & G. 551 [41 E.R. 1379]. The difficulty, which (by no means for the first time) arose in Russell's Case [1] , lay in the fact that the qualification, to which the initial gift was by its express terms made subject, was capable of taking effect in part but in part only. What the qualification did was (1) to make the gift to the donee "in the first instance" a gift of the income for life only, and (2) to give the corpus, after the death of that donee, to certain issue. The first part of the qualification was, of course, quite capable of taking effect, but the second part (for reasons which do not matter) was not. Actually this was the position which arose in Hancock v. Watson [2] itself, but the initial gift in Hancock v. Watson [2] was in terms unqualified, whereas the initial gift in Russell's Case [1] was by its express terms made "subject as hereinafter provided". The choice therefore, lay between (1) holding that the position was governed by the words of qualification in the "initial" gift, with the result that effect should be given to the qualification in so far as it was possible to give effect to it, and (2) holding that there was one inseverable qualification to which no effect could be given, with the result that the "initial" gift was not in fact "subject" to anything, but must take effect as an unqualified or "absolute" gift. It seemed to me—and there was authority to support this view—that the rule in Lassence v. Tierney [3] , properly understood, required that the second alternative should be preferred, although the "initial" gift was not in terms absolute, and although there was a qualification to which it was possible to give effect. 1. (1956) 95 C.L.R. 389. 2. (1902) A.C. 14. 3. (1902) A.C. 14. 4. (1956) 95 C.L.R. 389. 5. (1849) 1 Mac. & G. 551 [41 E.R. 1379]. The present case does not raise the same difficulty. Here there is a gift to each of eight children, which is expressed to be "subject to the provisions and powers hereinafter appearing". In what follows, as to five of the children, there are no "provisions" or "powers". The gifts to these five, therefore, take effect as unqualified gifts. In the case of one child there are exhaustive provisions, which define the interest of that child as a life interest only, and full effect must be given to that definition. In the case of the remaining two, there are also "provisions" to which full effect must be given. But those provisions are not exhaustive, and one of the events for which they do not provide has occurred. The initial gift must be read as subject only to such "provisions and powers" as are expressed. On the occurrence, therefore, of an event which is not provided for, that initial gift takes effect as an unqualified gift. The appeal should, in my opinion, be allowed.