Re Estate of PQR, Deceased

• Jurisdiction: Bermuda
• Judgment Date: 08 December 2014
• Date: 08 December 2014
• Docket Number: Civil Jurisdiction 2014 No 205
• Court: Court of Appeal (Bermuda)

[2014] Bda LR 116

In The Supreme Court of Bermuda

Civil Jurisdiction 2014 No 205

In the Matter of the Estate of PQR, Deceased

Ms F Rana-Fahy for the Applicant

Mr D Kessaram and Ms C Minors for the Respondent

Mr B Adamson for the Executor

The following cases were referred to in the judgment:

Leong v Lim Beng ChyeELR [1955] AC 648

AN v Barclays Private Bank and Trust (Cayman) Ltd [2006] CILR 67, 9 ITELR 630

Re Kent (Kent v McKay)UNK (1982) 136 DLR (3d) 318

Comes Sterling v LevingstonENR (1672–73) 21 ER 620

Charles v VarzeyUNK [2002] UKPC 48

Re Tuck's Settlement Trusts, Public Trustee v TuckUNK[1978] 1 All ER 1047

Clavering v Ellison (1859) 7 HL Cas 707

Nathan v LeonardWLR [2003] 1 WLR 827

Powell v MorganENR (1849) 12 ER 8

Cooke v Cholmondeley (1883) 11 LR (Ireland) 409

Re WilliamsELR [1910] 1 Ch 399

Rhodes v The Muswell Hill Land CompanyENR (1861) 29 Beav 560

Leerac Pty Ltd v Garrick E FayUNK [2008] NSWSC 1082

Forfeiture clause in Will — Whether clause in terrorem and void — Whether void for repugnancy on public policy grounds

RULING of Kawaley CJ

Introductory

1. The Applicant (‘D’) is the daughter of the deceased and the Respondent (‘W’) is the widow of the deceased. The parties, the two principal beneficiaries, disagree as to the effect of a forfeiture clause contained in clause 10 of the Will. The Applicant seeks to have the clause declared to be null and void. The Respondent seeks to uphold the clause, but concedes that it must be given a somewhat nuanced effect to avoid depriving the Applicant altogether of her right of access to the Court to enforce her undisputed rights under the Will.

2. The Executor adopted a neutral position, being primarily interested in clarifying the terms upon which the estate ought properly to be administered.

3. The point of construction is one that has seemingly never been determined as a matter of Bermuda law. Both the Applicant and the Respondent presented cogent arguments in support of their respective positions, relying on cases which revealed an apparent divergence between Commonwealth case law (more hostile to the validity of forfeiture clauses) and English case law (less hostile to the notion of seeking to give reasonable effect to forfeiture clauses). The present application requires the Court to some extent to choose between two competing strands of legal policy, one favouring giving primacy to the testator's intentions and the other permitting public policy considerations to prevail.

4. It was nevertheless ultimately common ground that the forfeiture clause had to be given a purposive construction so as to permit D to enforce her rights under the Will and should not be construed literally and/or strictly according to its terms. As a result, it was not in controversy that D was entitled to seek declaratory relief about the effect of the forfeiture clause itself without triggering its operation, assuming it was found to be valid.

5. Finally it is necessary to mention at the outset that the Will is seemingly (and somewhat surprisingly) not a professionally drawn instrument (in formal terms at least), but a ‘homemade’ instrument. How, if at all, this fact impacts on the issues in controversy will be addressed below.

The relevant provisions of the Will and the relief sought by D

6. The only actual gift for D is provided for in Clause 10 of the Will, which provides as follows:

‘I give to my said daughter [D] 50 per cent of all my cash and investments. Thus an equal percentage goes to my wife and daughter.

If my daughter or her affiliates initiate any litigation of any type relating to this will or to my wife's ownership of the [AB] property, or to my wife in general, then she shall forfeit this cash legacy and investment legacy, and shall receive no benefit from this will.’

7. W was given not just the other 50% of the Testator's cash and investments, but also all of the Testator's interest in (a) a New York property, (b) a Vermont property (or, if the property is held by a company, shares in the company), and (c) any Bermuda real estate. In addition W was given all residual real and personal property. The estate overall is believed to be worth some $40 million, some 60% of which unarguably represents cash and/or investments.

8. The Skeleton Argument of D described the following disputes in relation to the Will:

• i. whether the Testator's interests in the Mortgages constitute interests in Bermuda real estate gifted to W or investments in which D has a 50% interest;

• ii. whether the Executor is obliged to recover the Loans;

• iii. whether a sale and purchase agreement in relation to certain Bermuda real property (‘the SPA’) is enforceable;

• iv. whether certain shares in a US company (‘USC’) are held on constructive trust for D.

9. Against this background, Ms Rana-Fahy summarised the relief sought by D in her own Originating Summons as being declarations:

• i. that she will not be disentitled from benefitting under the Will:

  • (a) by participating in any proceedings in which she is joined as a defendant concerning the true meaning and effect of the Will,

  • (b) by making a claim in respect of the USC matter,

  • (c) by making a claim in the context of determining whether assets such as the Loans and the SPA form part of the Testator's estate; and

• ii. that clause 10 (ie the proviso to the gift) is invalid or of no effect.

10. These concerns are very real ones because the Executor has been advised to seek directions from this Court as to the true meaning and effect of the Will.

Legal findings

The Issues

11. D's counsel submitted that the following issues were relevant to the question of whether the forfeiture clause in the Will was valid:

• i. whether the clause imposed a condition precedent or a condition subsequent;

• ii. whether the condition is imposed merely in terrorem;

• iii. whether the condition is imposed with sufficient certainty;

• iv. whether the condition is void for repugnancy on, inter alia, public policy grounds;

• v. whether the condition is void for some wider public policy reasons.

Condition precedent or condition subsequent?

12. Ms Rana-Fahy submitted that forfeiture ‘clauses in wills and trusts have almost invariably been treated as imposing conditions subsequent. The natural and ordinary meaning of the words used in clause 10 of the Will (in particular “If my daughter or her affiliates initiate any litigation … then she shall forfeit …”) points to a condition subsequent rather than a condition precedent’ (Skeleton Argument, paragraph 13). Accordingly, if the forfeiture provisions were ineffective, the gift itself was still valid. The converse applied in the case of a condition precedent.

13. Mr Kessaram sensibly conceded this irresistible argument.

Void as merely in terrorem?

14. Ms Rana-Fahy submitted that the condition was clearly in terrorem and void because the clause contained no specific gift over. Mr Kessaram responded that the law does not in fact rigidly require an explicit gift over to displace the rule of construction D relied upon. The intention of the Testator was the key consideration. Because there were only two beneficiaries and one was given the residue, it was clear by necessary implication that W was intended to acquire D's interest if it was forfeited. Moreover, in construing the forfeiture condition, the Court was entitled to take into account the fact that the Will was a ‘homemade’ one.

15. In oral argument, D's counsel firstly referred the Court to the following passage from Privy Council judgment (delivered by Lord Radcliffe) in Leong v Lim Beng ChyeELR[1955] AC 648 at 660:

‘For whereas a condition subsequent in partial restraint of marriage was effective to determine the estate in the case of a devise of realty…it was early determined and consistently maintained that a condition subsequent in partial restraint of marriage, when annexed to a bequest of personalty, was ineffective to destroy the gift unless the will in question contained an explicit gift over of the legacy to another legatee. And for this purpose a mere residuary bequest was not treated as a gift over.

One thing is certain about this rule. It exists…’

16. Firstly, I reject the submission advanced on behalf of W that the quoted dicta are merely obiter, and not binding because the reasoning does not form part of the decision. The Judicial Committee expressly found (at page 663) that because there was no express gift over, the condition subsequent in restraint of marriage failed:

‘The condition or proviso must be treated as “merely in terrorem,” that is, as intended merely in a monitory sense, and the appellants are entitled to take the share equally between them, notwithstanding the remarriage of Sally Leong.’

17. More difficult to immediately assess was the merit of Mr Kessaram's suggestion that the principle contended for applies solely to covenants in restraint of marriage, and that it was illogical to seek to apply the express gift over requirement in other factual contexts. Lord Radcliffe himself observed (at page 662) that ‘it is not possible, at this stage of its history, to give an account of the origin of the rule that is wholly logical’. The illogicality arises because the rule was originally borrowed by the Ecclesiastical Courts from a Roman law public policy rule. The English courts subsequently re-characterised the rule, somewhat artificially, as a rule of construction based on the testator's presumed intentions. Nevertheless, there is nothing in the modern rule, as a rule of construction, which would limit its application to any particular species of forfeiture clause, as regards personalty. Lord Radcliffe concluded his analysis of the evolution of the rule by stating (at page 662–663) in terms which potentially apply to any forfeiture condition in a will:

‘No doubt it is quite satisfactory to say that, if the will...