Confusion and interpretation – a modern approach to construing wills

  • Author : Richard Wilson
  • Date : September 2010

The approach of the Court when construing wills has changed considerably over time, from being based on a rigid application of the strict literal meanings of the words used by the testator to one aimed at discerning the true intentions of the testator, even when the literal wording of the testamentary document appears not to reflect those intentions (see, for example, Blech v Blech [2002] WTLR 483 and Esson v Esson [2010] WTLR 187). The change in approach may, in part, be attributable to the intervention of Parliament in the form of the Administration of Justice Act 1982, which enables the Court to consider extrinsic evidence of the testator’s intention (s.21) and to rectify wills that do not reflect the testator’s intentions (s.20). These legislative tools mean that the Court is now far better placed to ascertain and give effect to testators’ intentions than was the case in the past. However, even before the passing of the Administration of Justice Act 1982, judicial attitudes had shifted away from a literal approach where the result of the application of such an approach would lead to what the Court considered to be the incorrect result. In a dissenting judgment in the case of Re Allsop [1968] Ch 39 at p.47, Lord Denning stated the following:

‘The object of the court in construing a will is to discover the intention of the testator. I do not think his intention is to be discovered by looking at the literal meaning of the words alone. That has led, times out of number, to the frustration of his intentions. You must look at the will in the light of surrounding circumstances. Eschewing technical rules and literal interpretation, you must look to see simply what the testator intended. If you find that a literal interpretation gives rise to a capricious result which you are satisfied the testator can never have intended, then you should reject that interpretation and seek for a sensible interpretation which does accord with his intention. It is sometimes said that a testator can be as capricious as he likes. Yes, if you are sure he intended to be. But you should not impute capriciousness to him merely to justify yourself in giving the words a literal interpretation.’

The decision of Mr Kevin Prosser QC in the Esson case is a good example of the application of the approach advocated by Lord Denning in Re Allsop. In Esson, the deceased left a home-made codicil which stated the following:

‘My Portman Building Society Account No. 72013068 is the residue of monies left to me by my mother Mrs Edith Firman. My husband Norman John Clements is in full agreement that should I predecease him, all monies in this account should be divided equally between my grandchildren.’

The deceased did not predecease her husband, and therefore the question arose as to whether the gift contained in the codicil failed (on the basis that the gift was conditional the deceased predeceasing her husband) or should be given effect to (on the basis that the deceased’s intention was to benefit the grandchildren in any event). The deputy judge held that notwithstanding the literal meaning of the words used by the deceased, viewed in context it was clear that the deceased did not intend to make the gift conditional on her predeceasing her husband. Echoing the comments of Lord Denning in Re Allsop, he stated:

‘...it would be even more surprising if [the Deceased] intended to make the gift to her grandchildren conditional upon the occurrence of a chance event, namely her happening to predecease her husband. Of course [the Deceased] was entitled to be capricious, but it is improbable that that was her true intention.’

In Esson, the deputy judge considered that the wording of the codicil was sufficiently ambiguous to enable him to consider extrinsic evidence of the deceased’s testamentary intentions, in accordance with s.21 of the Administration of Justice Act 1982. However, the deputy judge makes it clear in the judgment that he considered it possible to come to the same conclusion without reliance on extrinsic evidence.

The decision of Peter Smith J in RSPCA v Sharp [2010] EWHC 268 (Ch) appears to take the purposive approach to will construction even further. The question of construction in that case involved a gift of the IHT nil rate band in the following terms:

‘I GIVE the amount which at my death equals the maximum which I can give to them by this my will without inheritance tax becoming payable in respect of this gift:
aAs to seventy-eight percent (78%) to the said NORMA JAMES SHARP and PATRICIA DAPHNE SHARP as shall survive me and if more than one in equal shares absolutelybAs to twenty-two percent (22%) to JOHN EDWARD MASON of 4 Jervis Avenue Freezywater EN3 6LT absolutely’

The gift was contained in clause 3 of the will. By clause 4, the decesed gave a property in Gosport, Hampshire to Mr and Mrs Sharp. By clause 6 he left the residue of his estate to the Royal Society for the Prevention of Cruelty to Animals (RSPCA). The Court was therefore required to determine whether the value of the legacy in clause 3 was of the full nil-rate band sum at the date of death irrespective of the other chargeable bequest, or whether it was of the nil-rate band less the value of the property.

The RSPCA argued that the value of the clause 3 legacy was limited to the excess of the nil-rate band over the value of the property. Its argument was that in order for the legacy to be ‘the maximum which I can give to them by this my will without Inheritance Tax becoming payable in respect of this gift’ it could not be in an amount which resulted in the estate being chargeable to IHT. In view of the wording of the will, this seems not merely to be a possible construction, but rather the more obvious one. In particular, IHT is payable on the basis not of individual gifts, but on the amount of the transfer of value deemed to be made on death. The words ‘in respect of the gift’ used in clause 3 direct attention to the gift in question but are essentially meaningless. That being so, it is difficult to justify construing the will in such a way as to look at clause 3 in isolation and ascertain its amount on the assumption that it utilises the nil-rate band first and leaves the clause 4 gift of the property to be charged to IHT in full.

In support of its argument, the RSPCA relied on the fact that clause 4 of the will referred to the payment of IHT on that gift ‘if any’ from residue. The inclusion of those words showed that the deceased contemplated that IHT might not be payable, whereas if clause 3 automatically gave a gift of the full nil-rate band, the clause 4 bequest would always be subject to IHT.

Rather surprisingly, the judge held that clause 3 carried the entire nil-rate sum and that as a consequence, IHT was due and payable out of residue on the balance of the value of the chargeable transfer on death (i.e. the gift of the property under clause 4).

In reaching his decision, the judge appears to have been particularly concerned that if the RSPCA’s construction were adopted, one possible result could be that nothing would pass under clause 3 at all. This would be so if the value of the property passing under clause 4 exceeded the available nil-rate band at the date of death. The judge’s view of this was:

‘I ask myself whether or not the Deceased when being told that his will had this effect would have expected that a rise in the value of the Property (despite the direction that any inheritance tax would be payable out of the residuary bequest to the RSPCA) would in effect mean that the legacy in favour of his friends would be abated to zero merely because the Property had increased in value. The result of that exercise of course would mean that ultimately his brother would receive absolutely nothing.
‘I cannot believe that this is what the Deceased intended. It is so unlikely as to be incredible. Further it is not logical and gives undue violence to the simple straightforward wording of clauses 3 and 4. The former plainly intended to address any rises in the nil rate band and give a legacy of the appropriate amount. That was intended to be tax free. Clause 4 was equally intended to pass the Property to Mr & Mrs Sharp free of tax. However the clause did not say the nil rate band would be applied to that...’

Many practitioners will be surprised that this is considered to be ‘incredible’, particularly in the context where the friends benefiting from the gift are also primary beneficiaries of the tax-free sum gifted under clause 3. Specific legacies are frequently given by wills, with a separate nil-rate band ‘top-up’ legacy so as to ensure that the full nil-rate band is used in the event of the specific legacy failing to utilise it. If Peter Smith J is correct as to the proper construction of such clauses, it will be necessary for the drafting of many wills which were previously thought to be both clear and straightforward to be reconsidered.

It should be noted that this is a case in which none of the parties asserted that extrinsic evidence of the deceased’s intentions could be admitted in accordance with s.21 of the Administration of Justice Act 1982. Therefore, given the absence of any evidence of intention it is somewhat surprising that the judge should be so positive in his assertion that the deceased would wish to structure his affairs in such a way as to avoid IHT being payable at all while giving as much as possible to non-exempt beneficiaries. In practice this is a common desire on the part of testators, who often benefit friends and family to the extent of the nil-rate band only and give the residue to charity. It is hardly ‘...so unlikely as to be incredible’ and it is therefore surprising that the judge should be prepared to make such findings as to the deceased’s intention in such forceful terms without any evidence. It is submitted that the wording of the will itself did not provide any particular support for that contention.

Perhaps the greatest curiosity that arises if the judge’s view on the proper construction of the will is correct is why the deceased should have chosen to give a legacy of the nil-rate band under clause 3. If, as the judge found, this legacy would always result in tax being paid from residue because of the gift of the property by clause 4, there seems to be no reason why the deceased should choose to give a legacy in an amount which could increase (or decrease) as Parliament should choose. If the IHT was always to be paid from residue, why would the testator not have given a legacy of a fixed (or index-linked) amount? It is submitted that the more obvious explanation is that it was his intention to ensure that his will resulted in no IHT being payable overall.

The judge was further fortified in his view by the provisions of clause 5 of the will, which directed that all debts, funeral and testamentary expenses be paid out of residue. He accepted the argument put forward by the defendants that that provision would be otiose as regards IHT unless IHT were chargeable on the residuary estate in respect of other dispositions under the will. That may well be so, but it does not in any way support the judge’s construction of clause 3: IHT could easily have been payable under clause 5 on the RSPCA’s case if, for example, the property disposed of by clause 4 had risen to a value greater than the nil-rate band by the date of the deceased’s death.

In both Sharp and Esson the judges have determined the point of construction on the basis of rejecting an alternative construction that they considered would give rise to an absurd or capricious result. However the conclusion reached by the judge in Esson appears to be a far more justifiable one: for a gift to one’s grandchildren to take effect only if the testator predeceases another person is clearly capricious, and unless there is evidence that the testator wished to act in such a way, it should not be presumed that that was the intention. In contrast, the construction contended for by the RSPCA seems to be far from incredible: many testators deliberately arrange their affairs in a way which minimises the IHT on their estates and include charitable beneficiaries in order to ensure that that result be achieved. In the absence of positive evidence to show that the testator’s intentions were not the minimisation of IHT, it is somewhat surprising that the judge felt so strongly that this could not be (and clearly was not) the testator’s intention.

Also surprising is the costs order made in Sharp. The RSPCA sought to rely on the fact that they had made several suggestions that a without prejudice meeting might resolve matters, and that their suggestions had been rejected by the other parties. Notwithstanding those efforts to settle, the judge held that all parties’ costs should be paid out of the residuary estate on an indemnity basis: in practice, therefore, at the expense of the RSPCA.

This runs contrary to the normal approach of penalising in costs a party who refuses to engage in settlement negotiations.

While it is undoubtedly desirable that when construing wills the Court should seek to give effect to a testator’s intentions, even where the literal meaning of the words would not lead to such an outcome, there is plainly a need for the Court to exercise caution when inferring what that intention is (or would be). In cases where extrinsic evidence is considered (such as Esson) the Court is much better equipped to ascertain that intention, or at least check the conclusion it has reached on construction against that evidence. Where the Court is unable to consider such evidence, it should be wary of inferring an intention that contradicts the strict meaning of the language used unless that meaning gives rise to a result that is plainly absurd or capricious and thereforeextremely unlikely to have been intended.

Richard Wilson TEP is a barrister practising at 3 Stone Buildings, Lincoln’s Inn, London


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