Royal Society for the Prevention of Cruelty To Animals v Sharp & Ors

This is an appeal by the Royal Society for the Prevention of Cruelty to Animals (“the RSPCA”) against a decision of Peter Smith J ([2010] EWHC 268 (Ch)) on the construction of a will. The judge dismissed their claim on construction and ordered the respondents’ costs to be paid out of the estate on an indemnity basis. Both parts of his order are under appeal.

The RSPCA is entitled to the residuary estate of Mr George Mason (“the Testator”) who died on 18^th June 2007. By his will dated 19^th January 2005, which was professionally drawn, he appointed Norman James Sharp and his wife Patricia Daphne Sharp as his executors and trustees. His will then went on to provide as follows:

“3.

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:

(a)

as to seventy-eight percent (78%) to the said NORMAN JAMES SHARP and PATRICIA DAPHNE SHARP as shall survive me and if more than one in equal shares absolutely

(b)

as to twenty-two percent (22%) to JOHN EDWARD MASON of 4 Jervis Avenue Freezywater EN3 6LT absolutely

4.

I GIVE my property situate and known as 39 Malvern Road Gosport in Hampshire PO12 3LH to the said NORMAN JAMES SHARP and PATRICIA DAPHNE SHARP as shall survive me and if more than one jointly and equally absolutely and I direct that the Inheritance Tax (if any) payable on my death in respect of the property and all costs of the registration of the said NORMAN JAMES SHARP and PATRICIA DAPHNE SHARP as proprietors thereof shall be payable out of my residuary estate.”

Clauses 5 and 6 of the will contain conventional provisions for the payment of debts and expenses followed by the gift of the Testator’s residuary estate in favour of the RSPCA.

At his death the Testator’s estate comprised some £771,178 held in bank and building society accounts and £12,832 in cash. His other main asset was his property at 39 Malvern Road, Gosport (“the Property”) which was valued for probate purposes at £169,000. At the time of his death the nil rate band for inheritance tax (“IHT”) purposes was £300,000. The executors proceeded to distribute the estate by paying to Mr and Mrs Sharp 78% of this sum (£234,000) and by paying the remaining 22% (£66,000) to Mr Mason. The Sharps had, on the evidence, been lifelong friends of the Testator and Mr Mason was his brother and sole surviving relative. The Property was transferred to Mr and Mrs Sharp free of IHT or other charges. After payment of IHT on the estate in the sum of £112,667 some £302,241 was payable to the RSPCA out of residue after the other debts and liabilities of the estate had been discharged.

The RSPCA challenged the executors’ interpretation of the will. They contend that the gift in clause 3 is effective to pass to Mr and Mrs Sharp and to Mr Mason only the unused nil rate band as at the Testator’s death. To calculate this the value of the Property passing under clause 4 has to be taken into account as part of the transfer of value made on death. Had there been any lifetime gifts within seven years of death (which there were not) they would also have had to be aggregated with the other assets passing on death.

There is no dispute that this is how IHT falls to be assessed. Section 1 of the Inheritance Tax Act 1984 (“IHTA 1984”) provides that IHT shall be charged on the value transferred by a chargeable transfer. This is defined in s.2 as a transfer of value: i.e. a disposition as a result of which the value of the transferor’s estate immediately after the disposition is less than it would be but for the disposition. The amount by which it is less is the value transferred: see s.3(1). Transfers of value to charities (such as the gift of residue to the RSPCA) are, of course, exempt from inheritance tax.

Section 4(1) provides that:

“(1)

On the death of any person tax shall be charged as if, immediately before his death, he had made a transfer of value and the value transferred by it had been equal to the value of his estate immediately before his death.”

A person’s estate is defined by s.3(1) as the aggregate of all the property to which he is beneficially entitled. Once calculated IHT is payable on the amount of the chargeable transfer at the rates set out in the applicable bands in Schedule 1 to the Act. The first of these is the nil rate band which, as I mentioned earlier, applied as of the Testator’s death to the first £300,000 in value of the estate.

Ms Reed QC submits (as she did to the judge) that “the maximum” which the Testator could give to the legatees under clause 3 “by this my Will without Inheritance Tax becoming payable in respect of this gift” depended on the value of the Property. If it was worth less than the amount of the nil rate band then the amount of the difference would be the maximum sum that could be given under clause 3 without IHT becoming payable “in respect of this gift”. She has to accept that, on this construction of the will, the legacies under clause 3 could be reduced to nil depending on whether the value of the Property exceeded the nil rate band. But she places some reliance on the fact that Mr and Mrs Sharp are the beneficiaries under clause 4 and any decrease in their entitlement under clause 3(a) will be matched by an increase in the value of the gift under clause 4. This does not, however, apply to Mr Mason.

Simply in terms of the language of the will, Ms Reed also refers to the direction in clause 4 that the IHT “if any” payable in respect of the Property should be met out of the residuary estate. This, she submits, is a further recognition of how clauses 3 and 4 were intended to work. On her construction of clause 3, no IHT could ever become payable as a result of the pecuniary legacies but tax would become chargeable on the Property if the value exceeded the amount of the nil rate band. The words “if any” are therefore appropriate to cover this eventuality whereas, on the executors’ construction of clause 3, they are meaningless. There would always be IHT payable “in respect of” the Property because of the amount passing under clause 3.

The executors’ construction of clause 3 requires one to read it as a gift equal to the amount of the nil rate band at death free of tax so that the incidence of IHT on the combined value of the Property and the £300,000 falls to be paid out of residue. Ms Reed submits that if this was the intention then it is striking that clause 3 contains no direction to that effect (unlike clause 4) even though the combined effect of the two gifts would, on the executors’ argument, mean that both are necessarily chargeable transfers. It would have been very easy for the draftsman to have given the clause 3 legatees in express terms a share of a sum equal to the nil rate band at the relevant time free of tax had that been his intention. What he in fact gave them was something quite different.

The judge endorsed the executors’ construction of the will. He rejected Ms Reed’s submission that the Testator had created (and intended to create) a tax efficient will which excluded any charge to IHT unless the value of the Property exceeded the nil rate band.

In relation to Miss Reed’s submissions about the words “payable in respect of the gift” in clause 3 and “if any” in clause 4, he said this:-

“16.

In my view this is to over complicate the will and is patently wrong. It seems to me to be clear that the Deceased had in mind 2 categories of people on whom he wished to confer his largesse. First there were his friends the Sharps and his brother (his sole surviving relative). Second he decided to make a large bequest to the RSPCA of the residue. He would be aware that any sum passing to the RSPCA would not be subject to IHT.

17.

It seems to me clear that the purpose of clause 3 was to bequeath a legacy of the amount that was the maximum amount without inheritance tax being payable. The draftsman intended by the description to cover the possibility that the nil rate band might increase between the date of the will and the death. In other words it was intended that this legacy would be free of tax and would be an amount equal to the nil rate band at the time of the death of the Deceased. The draftsman therefore anticipated increases by his wording.

18.

Equally he contemplated by the devise in clause 4 to ensure that the Property passed to his friends the Sharps free of any tax. It seems to me clear that he anticipated that tax was likely to be payable and if it was then it would fall on the residue clause in favour of the RSPCA. That too in my view reflects a clear contemplation that his family and friends were to take the legacy and the Property free of tax and the RSPCA would take the balance but subject to any tax payable arising out of the fact that the bequest and the devise might give rise to an incident of tax.

19.

The RSPCA’s argument (as long as the Property is worth less than the nil rate band) ignores the plain fact that the Deceased contemplated IHT would be payable under clause 4. However its argument will ensure no IHT will be payable by using the nil rate band. This boosts the residuary legatee at the expense of the clause 3 legatees.

20.

This seems to be perfectly logical. I do not accept that the intention of the Deceased was necessarily to organise his affairs so as to ensure no IHT was payable. This is illustrated by an example I put to Ms Reed QC in argument. If the Property went up in value to £300,000 she accepted on her arguments that it would use the entirety of the nil rate band. She equally accepted that the result would be that no monies at all would pass under the legacy because there would be no nil rate band left to convert into a legacy.

21.

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 under clause 3 and his brother under clause 3 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.

22.

I cannot believe that that 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. It contemplated that any IHT thereby arising would be payable out of the residuary legacy in favour of the RSPCA. The words “if any” are merely to address the possibility that future events (however unlikely) might change the law of applying IHT so that in some way the Property might become exempt or subject to a reduced rate. I do not see it has any other significance whatsoever. The clear intent under clause 4 in my view was that it was not to have applied to it the nil rate band but was subject to IHT (subject to that possible change in the future) and the whole of the nil rate band was to be utilised to give a legacy under clause 3.

23.

That does not do violence to the principle of inheritance tax and its application as set out in section 4 IHTA 1984. The purpose of that provision is simply to make the incidence of IHT apply to the whole estate. It is perfectly possible for a Testator by his will to alter the incidence of tax as between the various constituent parts of the will. That of course does not bind HMRC who can levy tax against all of the assets. Sometimes of course the wishes of the Testator as to the incidence of debt might be affected by the size of his estate. In that eventuality of course the provisions of section 34(3) of the Administration of Estates Act 1925 will be applied.”

Mr Gordon, on behalf of the respondents, supports the reasoning of the judge. He submits that the RSPCA’s construction does not properly reflect what the will says or what is likely to have been the intention of the Testator. He accepts that the phrase “the maximum which I can give to them by this my Will without Inheritance Tax becoming payable” must be read as referring to the nil rate band set out in IHTA 1984 Schedule 1. But clauses 3 and 4 contain, he submits, separate gifts which the draftsman obviously thought would produce their own fiscal consequences. The amount of the nil rate band was to be given under clause 3 leaving the gift of the Property under clause 4 exposed to IHT which was to be borne by the residuary estate as directed. The effect of the appellant’s construction of the will is that the pecuniary legacies in favour of the Sharps and Mr Mason will be reduced to £102,180 and £28,820 respectively and the gift of residue to the RSPCA will increase to £651,820.

The difference between the parties really turns on whether the Testator intended to make a tax-efficient disposition of his estate: i.e. one which avoided IHT entirely by limiting the totality in value of the gifts under clauses 3 and 4 to the nil rate band and leaving the entire residue to charity. Mr Gordon submits that it would be wrong to attribute such an intention to the Testator. He referred us to what was said by Harman J in Cancer Research Campaign v Ernest Brown & Co (a firm) [1998] PNLR 592 to the effect that tax avoidance is not an idea that runs naturally or should be attributed to ordinary people or to legal executives in a small firm of high street solicitors. But that (if I may say so) rather patronising observation should not be regarded as a universal truth. The difficulty which Mr Gordon faces with that submission is that the will does disclose some knowledge and understanding of the IHT legislation and its provisions relating to the nil rate band and to exempt transfers. We are dealing here with a will drawn up by solicitors who it might be assumed had some familiarity with the way in which IHT operates under the provisions I have referred to.

Mr Gordon rightly accepted that there is no claim here for rectification under s.20 of the Administration of Justice Act 1982 and it was common ground at the hearing that no extrinsic evidence should be admitted as an aid to the construction of the will. The judge did not therefore hear any evidence about the actual instructions given to the solicitors on behalf of the Testator or what they intended by their drafting of the will. We therefore have to assume that the contents of the will properly construed represent what the Testator intended to achieve.

Mr Gordon’s submission that the will should be construed on what he described as a gift-by-gift basis requires one to accept that the solicitor who drew the will had an imperfect understanding of IHT and, in particular, the aggregation provisions contained in s.4 IHTA 1984. This, he says, is evident from the reference in clause 3 to the maximum amount which could be given “without Inheritance Tax becoming payable in respect of this gift”. Had the draftsman of the will been aware that the tax liability falls on the aggregated transfer of value he would not have attributed any tax liability to that particular gift. The same point can be made about the words in clause 4 “in respect of the property”.

Mr Gordon therefore invites us to follow the judge and to read clause 3 as in effect giving to the named beneficiaries shares in a tax free amount equal to the nil rate band. The Testator (without a full understanding of the mechanics of IHT) is, he says, directing the payment of pecuniary legacies in that sum on the assumption that the tax consequences would fall on the residuary estate. Had it been his intention merely to sweep up, so to speak, any balance of the nil band rate left after taking into account the value of the Property, it would have been more natural for clause 3 to have followed clause 4. The words “if any” in clause 4 can be explained as an abundance of caution on the part of the draftsman to take account of possible changes in IHT between the making of the will and death.

One thing on which the parties were in agreement was the approach of the Court to the construction of a will. As mentioned above, it was common ground before the judge that no extrinsic evidence was admissible. He had therefore to follow the guidance of Lord Simon L.C. in Perrin v Morgan [1943] A.C. 399 at 406 and to construe the language of the will so as to find:

“… the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made his will, but what the written words he uses mean in the particular case - what are the "expressed intentions" of the testator.”

We have therefore to examine the language of the will in its context taking into account the will as a whole; any relevant background circumstances which inform the meaning of the words used; and giving to those words their ordinary meaning unless they are obviously used in some special or technical sense.

The divide in this case centres on whether the Testator intended to make a will which excluded IHT unless the Property exceeded the nil rate band in value. In this event the pecuniary legacies under clause 3 would also be eliminated. The judge largely rejected this construction on the will because he considered it incredible (as he put it) to assume that the Testator would have intended to reduce or eliminate the gifts of money to his brother and to the Sharps in the event that the combined value of the non-exempt transfers should exceed the amount of the nil rate band. But, in the absence of any extrinsic evidence about the Testator or his wishes, this is largely speculation. We know nothing about his brother’s financial circumstances; the Testator’s degree of commitment to the RSPCA; or the strength of his desire to avoid any charge to IHT on his assets. It is perfectly possible that the second and third of these elements outweighed any perceived risk that the clause 3 legacies would be reduced to nil.

For these reasons it is dangerous to approach the assessment of the Testator’s intentions other than through the language of his will. The first relevant consideration in my view is that the will was professionally drafted by a solicitor who has to be assumed to be competent. Although solicitors do obviously make mistakes, there needs to be something in the language of the document or its admissible background to justify that inference. More importantly, those factors must be such as to permit the Court to give the words actually used a meaning which is not strictly in accordance with the usual rules of grammar or vocabulary: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.

Mr Gordon accepts that clause 3 has to be construed as a gift of an amount equal to the IHT nil rate band. But he says it is independent of and additional to the gift of the Property in clause 4. For this he largely relies on the concluding words “in respect of this gift”. I am not persuaded by that. The phrase “the maximum which I can give to them by this my Will without Inheritance Tax becoming payable in respect of this gift” seems to me to contemplate (as it must) a calculation of the nil rate band by reference to all transfers of value made “by this my Will”. Those words are not superfluous or accidental. They are an accurate recognition of how IHT works. Had the clause stopped there it would be difficult to see what the Respondents’ construction could fasten on to. As it is, they rely on “in respect of this gift”.

It is true that a gift equal to the nil rate band of IHT cannot be isolated from the application of the charge to tax. But that is not what the draftsman is saying. The words “in respect of this gift”, far from being inconsistent with an understanding of IHT, shows that the draftsman appreciated that the gift of the Property and the legacies under clause 3 would be aggregated in order to calculate what was left of the nil rate band. Clause 3 is therefore limited to what is left of the band before tax would otherwise become payable as a result of this gift. The phrase “in respect of” is far too general to negative the effect of the words which precede it.

The language of clause 3 does not therefore disclose a misunderstanding of IHT nor does it permit the clause to be construed as Mr Gordon contends. His construction (which the judge adopted) would involve, in my view, a complete re-drafting of clause 3. Instead of a gift equal to the amount of the nil rate band determined by reference to the other provisions of the will (“which I can give them by this my Will”), one has on this argument to read clause 3 simply as a gift of a sum equal to the nil rate band from time to time. There is nothing in clause 3 which indicates that this is what the draftsman and, through him, the Testator intended.

I am also not convinced by Mr Gordon’s explanation of the words “(if any)” in clause 4. On the RSPCA’s construction, they have a purpose but the suggestion that they were inserted to deal with the possibility of future legislative changes in relation to IHT seems to me implausible. I attach more significance, however, to the express provisions in clause 4 directing the payment of any IHT “in respect of the property” out of residue and the absence of any similar provision in clause 3. The judge interpreted clause 3 as meaning that the gift would be free of tax but it is odd (if this was what was intended) that the clause did not adopt the same formula as in clause 4. The absence of this is consistent with clause 3 operating to reduce the amount of the legacies to the balance of the nil rate band rather than with it being a gift of £300,000 in addition to the gift of the Property in clause 4.

For those reasons, I consider that the construction adopted by the judge was wrong and that the appeal against his judgment on that issue should be allowed. In these circumstances, it is unnecessary for me to deal with the appeal against his order that the RSPCA should pay the costs of the action on an indemnity basis. The order for costs must be set aside if the appeal on construction is allowed. I would only say that an order for indemnity costs remains an exceptional order and that I do not believe that it was justified in this case.

I agree.

The factual background to this appeal has been fully set out by Patten LJ, who has also explained the issue which divides the parties. That issue is relatively simple to identify, but, at least in my view, it is not easy to resolve.

The issue turns on the interrelationship between clauses 3 and 4 of the Will of 19 January 2005 (“the Will”), which are set out in paragraph 2 of Patten LJ’s judgment. Is the gift in clause 3 of “the amount which at my death equals the maximum which I can give them by this my will without inheritance tax becoming payable in respect of this gift”, a bequest of an amount equal to the nil rate band, as the executors understood and contend, or is it, as the RSPCA contends, an amount equal to the nil rate band less the value for probate of 39 Malvern Road Gosport (“the property”) devised by clause 4?

As Patten LJ impliedly acknowledges by his reference to Investors Compensation Scheme Limited v. West Bromwich Building Society [1998] 1 WLR 896, the court’s approach to the interpretation of wills is, in practice, very similar to its approach to the interpretation of contracts. Of course, in the case of a contract, there are at least two parties involved in negotiating its terms, whereas a will is a unilateral document. However, it is clear from a number of cases that the approach to interpretation of unilateral documents, such as a notice or a patent, is effectively the same, as a matter of principle, as the court’s approach to the interpretation of a bilateral or multilateral document such as a contract: see Mannai Investments Ltd v Eagle Star Insurance Co plc [1997] AC 749 and Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] RPC 9.

One obvious difference between a bilateral document such as a contract and a unilateral document such as a will, is that parties negotiating a contract may well be consciously content to include an obscurely drafted provision, on the basis that it represents an acceptable compromise, which enables overall agreement to be reached, whereas, save in a most exceptional case, which it is hard to conceive, a person making a will has no interest in obscurity.

Accordingly, I have no real doubt but that the testator, the late George Mason, who executed the Will, and indeed the solicitor who drafted it, thought that the effect of clauses 3 and 4 was clear. Unfortunately, what appeared clear from their perspective at the time is far from clear to subsequent readers of the document.

While the point appears to me to be far from easy, and while my ultimate view does not accord with my initial impression, I have reached the same conclusion as Patten LJ, namely that the submissions of Miss Penelope Reed QC on behalf of the RSPCA are correct, and the bequest made by clause 3 of the Will is of a sum equal to the nil rate band less the value of the property.

My principal reason for initially taking a contrary view was that it appeared to me that the clauses of the Will were meant to be read and to take effect sequentially, so that the gift in clause 3 was of a sum equal to the whole of the nil rate band, and the effect of the bequest of the property under clause 4, coming as it does after clause 3, should not being taken into account when construing clause 3. On further reflection, it appears to me that this is not an appropriate way to read the Will, essentially for two reasons.

The first reason for rejecting that approach is that the Will does not in fact precisely distribute the estate in a way which can be said to be sequential through clauses 3 to 6. Although one can, as a matter of logic, read clause 4 as sequential or subject to, clause 3, in terms of distribution as well as in terms of its position in the Will, one cannot read clause 5, at least in its entirety, as being sequential or subject to clause 4, or even clause 3. Although clause 5 is primarily concerned with the residue of the estate, it begins by dealing with the payment of debts and funeral and testamentary expenses, which must take precedence over the gifts in clauses 3 and 4. I accept, of course, that it is very usual for such debts and expenses to be referred to in a will in connection with the residue of the estate. However, that does not detract from the point that the reference to those debts and expenses in clause 5 undermines the contention that clauses 3 to 6 were intended to be strictly sequential, not merely in terms of their location in the Will, but also in terms of the distribution of the estate.

Quite apart from this, there is a well established body of authority which establishes that “prima face, all bequests stand on an equal footing, and it lies upon those who assert the contrary, to prove it. It is not sufficient that the words of the Will should leave the question in doubt. They must positively and clearly establish, that it was the intention of the testator that the bequests should not stand upon an equal footing” - see per Knight Bruce V-C in Thwaites v. Foreman (1884)1 Coll. 409, 414, cited by Warrington J in In re Harris, Harris v. Harris [1912] 2 Ch. 241. See also Blower v. Morret (1752) 2 Ves. Sen 420 and In re: Schweder’s Estate; Oppenheim v. Schweder [1891] 3 Ch. 44. In those cases (none of which was cited below, it is only fair to say), the court was concerned with a different question from that which arises in this case, namely what to do when an estate is too small to satisfy all the bequests in the Will. However, it seems to me that they underline the general point that a will is to be construed as a whole, and clear words are required before one construes one clause as being subject or subordinate to another, simply because it is later in the Will than the other clause.

That is not to say that the fact that one bequest comes before another in a will must always be wholly disregarded when one has to decide how they interrelate, but, as a free-standing point, the mere fact that one clause precedes another seems to me to be of minor potential relevance on the issue of how they interrelate with each other.

I now turn to explain why it seems to me that the RSPCA’s submissions are to be preferred, and the bequest in clause 3 of the Will is to be treated as a sum equal to the nil rate band less the value of the property, rather than the value of the nil rate band.

My first reason is based on the words “(if any)” in clause 4. If clause 3 has the meaning for which the executors contend, Inheritance Tax will always be payable on the property and the words “(if any)” would therefore have no meaning. I find it impossible to conceive of even a wholly unanticipated change in Inheritance Tax which could give the words any effect, if clause 3 has the meaning for which the executors contend. On the other hand, the words “(if any)” have a perfectly good meaning if clause 3 has the meaning for which the RSPCA contends, because Inheritance Tax could be payable in respect of the property, but only if its value was in excess of the nil rate band at the date of death. (It is true that that would have seemed unlikely in 2005 when the Will was executed, but it was foreseeable that both property values and the nil rate band could each change quite substantially over a short period, albeit for somewhat different reasons.)

I wondered at one time whether this first reason was weakened by the fact the words “(if any)” were not included in clause 3, when, on the RSPCA’s case it can be said that they should have been included, because, if the value of the property had exceeded the nil rate band, the bequest in clause 3 would have fallen away. However, the absence of the words in clause 3 does not ultimately undermine the point that meaning should, if possible, be given to the words when they are included in clause 4. Furthermore, on any view, the words “(if any)” should have been included in clause 5, because there might have been no residue. Accordingly, the absence of the words in clause 3 is not of much significance in any event.

My second reason for favouring the RSPCA’s case is based on the references to the “Inheritance Tax… in respect of the property” in clause 4, and to “Inheritance Tax… payable in respect of this gift” in clause 3. These phrases present no problem on the RSPCA’s case. If the value of the property exceeds the nil rate band, then Inheritance Tax would only be payable in respect of the property, because there would be no bequest under clause 3, and the residue of the estate would go to the RSPCA, and would therefore carry no Inheritance Tax, because of the RSPCA’s charitable status. On the other hand, if, as was the case, and indeed was probably anticipated by the testator, the value of the property was well below the nil rate band, then, provided the bequest in clause 3 was no higher than the figure which, when aggregated with the value of the property, did not exceed the nil rate band, Inheritance Tax would not “becom[e] payable in respect of th[at] gift”.

On the other hand, on the executors’ case, unless the value of the totality of the estate fell within the nil rate band (which would have been regarded as possible but unlikely at the date of the execution of the Will), Inheritance Tax would “becom[e] payable in respect of th[e] gift” under clause 3, because, as Patten LJ has explained, Inheritance Tax is payable in respect of the whole of an estate and it is not, as it were, allocated to any specific property which has been bequeathed or devised.

My third reason for favouring the RSPCA’s case is the rationale behind the use of the nil rate band in clause 3. The executors’ interpretation attributes to the testator an intention to bequeath the property to Mr and Mrs Sharp under clause 4, and a sum equal to the nil rate band to Mr and Mrs Sharp and to Mr Mason under clause 3. As is stated in Kessler on Drafting Trusts and Will Trusts (2004), p284, “The nil rate band might be increased substantially [or i]t may be substantially reduced.” Though not capricious, it does appear to me to be a little odd for a testator to use whatever the nil rate band might happen to be at his death to determine the size of a bequest, for reasons which, in reality, have no connection with the purpose of the nil rate band. As I have explained, it is inevitable that Inheritance Tax will be payable on the executors’ construction (save in the unlikely event of the nil rate band exceeding the value of the estate), and the purpose of using the nil rate band is normally to avoid paying Inheritance Tax.

It seems to me more likely that the purpose of the linking of the size of the bequest in clause 3 to the nil rate band was connected with the purpose of the nil rate band. That is what the RSPCA’s interpretation involves, as it results in the beneficiaries under clause 3 receiving the maximum amount possible without giving rise to any liability to Inheritance Tax. My view is reinforced by a number of precedents, to which Miss Reed drew our attention. Those precedents have the aim of enabling a person, who leaves the bulk of his or her estate in such a way as does not attract Inheritance Tax (e.g. to a spouse or civil partner, or to a charity), to avoid any exposure to Inheritance Tax by limiting the aggregate value of any other bequests to an amount equal to the nil rate band.

This third reason is also reinforced by considering the effect of any lifetime gifts which the testator could have made after executing the Will. Such gifts, unless made seven years before the testator’s death would have been taken into account when assessing the nil rate band. That emphasises the rather capricious effect of the executors’ construction, as the value of the clause 3 gift would be reduced for no immediately apparent logical reason. On the RSPCA’s construction, by contrast, the reduction would be easily explicable on the basis that the size of the bequest in clause 3 was to be limited to the maximum figure in order to avoid Inheritance Tax liability.

Peter Smith J thought it very unlikely that the testator could possibly have intended that circumstances might arise where nothing passed under clause 3, because the value of the property exceeded the nil rate band. Given that the value of the property was scarcely half of the nil rate band when the testator died, some thirty months after executing the Will, he may well have taken the view that a bequest of a sum equal to the value of the nil rate band less the value of the property would be likely to be a substantial sum, as indeed it was. Quite apart from that, the notion that clause 3 might have no effect is no more surprising than the notion that clause 6 might have no effect. Yet, on any view, the value of the estate could have fallen, or the amount of the nil rate band could have risen, to such an extent between the date of the Will and the date of death, that there would have been no residue.

Mr Gordon’s argument in support of the executors’ interpretation was attractively advanced, and, as indicated above, I was initially persuaded by it. However, for the reasons I have attempted to give, I am satisfied that this appeal must be allowed.

It follows from this conclusion that Peter Smith J’s decision to award costs against the RSPCA must be discharged. However, even if I had concluded that he had reached the right conclusion on the issue of interpretation, I would still have reversed his decision to award those costs on an indemnity basis. A beneficiary, whether or not a charity, bringing a claim to establish that a will is being wrongly interpreted to its disadvantage, should be aware that there is a possibility of an adverse order for costs if its claim fails. In some such cases, the court may conclude that the costs incurred by the beneficiary should be reimbursed out of the estate; in other cases, the beneficiary may be ordered to bear its own costs; and in yet other cases it may be ordered to pay the executors’ costs.

In the present case, Peter Smith J thought it right for the executors’ and other beneficiaries’ costs to be borne by the estate. It is unnecessary to decide whether that was right. Based on his view as to the meaning of the Will, that may well have been right. But where, with all respect to him, he was clearly wrong was when he went on to order that those costs be assessed on an indemnity basis. On the basis of Peter Smith J’s conclusions on the meaning of the Will, all the RSPCA had done was to take a point on the interpretation of the Will which was wrong. There was no more, and no less, to it than that and in those circumstances it was simply wrong in principle to make an order against the RSPCA for indemnity costs.

As it is, for the reasons I have given and for the reasons given by Patten LJ, I would allow this appeal.