National Trustees Executors and Agency Co of Australasia Ltd v Federal Commissioner of Taxation
91 CLR 5401954 - 1129B - HCA
(Decision by: McTiernan and Taylor JJ)
Between: National Trustees Executors and Agency Co of Australasia Ltd
And: Federal Commissioner of Taxation
Judges:
Dixon CJ
McTiernan J and Taylor JFullagar J
Kitto J
Subject References:
Succession
Estate duty
Assessment
Right to share of profit
Valuation at death
Legislative References: - Estate Duty Assessment Act 1914 (No 22); Wool Realization (Distribution of Profits) Act 1948 (No 87)
Hearing date: MELBOURNE 18 May 1954; 19 May 1954; 20 May 1954Judgment date: 29 November 1954
SYDNEY
Decision by:
McTiernan and Taylor JJ
McTIERNAN AND TAYLOR JJ. The fundamental question in this case is whether the provisions of the Wool Realization (Distribution of Profits) Act 1948 operated to confer upon one Walter Cobbold Curphey Cain, in his lifetime, any right which may properly be regarded as property for the purposes of the Estate Duty Assessment Act 1914-1947.
Cain was a person who in the period between the years 1939 and 1946 supplied "participating wool" within the meaning of the former Act but he died on 30th April 1949, some four months after that Act came into operation, and nearly seven months before the notification, on 24th November 1949, by the Minister of State for Commerce and Agriculture, that an amount of PD25,000,000 was available for distribution under the Act. This notification was made under s. 6 (1) of the Act as also was the second notification of 27th March 1952 (see case stated pars. 40 and 46) that a further sum of PD25,000,000 was available for distribution. In the distribution of each of these sums by the Australian Wool Realization Commission payments were made to the appellant who is and was at all material times the executor of the deceased. For reasons which appear upon a consideration of the case stated no question arises in relation to the payment made in the course of the distribution of the first sum above-mentioned and the inquiry in the case is limited to the second distribution and the antecedent right, if any, which the deceased, in his lifetime, had with respect to a share in it.
In the course of the second distribution the appellant received, on 28th March 1952, the sum of PD2,816 and on 30th May 1952 an amended assessment, which purported to include this amount in the value of the deceased's estate for duty pursuant to the Estate Duty Assessment Act, was issued by the respondent. To this assessment the appellant objected upon a number of grounds which, inter alia, raised the question to which we have already adverted.
For the purpose of endeavouring to clarify the point in issue on this aspect of the case it may at once be said that the mere receipt of the sum in question on 28th March 1952 by the executor of the deceased did not, and could not, operate to fix that sum with the character of property of the deceased at the time of his death. But if it was paid to the executor pursuant to some legal obligation owed to the deceased at the time of his death then it may be said that the complementary right of the deceased to receive or recover it at some future time constituted part of his estate as being part of his personal property within the meaning of the Estate Duty Assessment Act. In such circumstances, however, it would be the value of that right which should be included and not necessarily the quantum of the amount subsequently received by his executor.
These observations bring to the forefront of the case the provisions of the Wool Realization (Distribution of Profits) Act 1948 and immediately raise the question whether they conferred upon the deceased a right to participate in any future distribution of surplus profits which might properly be classified as property. Several of the provisions of the latter Act have already been the subject of judicial consideration and it is unnecessary to refer to them in great detail. But it is of importance to notice some of the fundamental provisions of the Act. In the first place it is of importance to observe that Pt. III-"Persons Entitled"-contains provisions for ensuring that any payments made shall be made, primarily, to the persons who supplied the participating wool for appraisement. We say primarily because special provision is made, inter alia, for cases where any such person has, since supplying wool of that character, become bankrupt or has died or, being a company, has become defunct. In the case of a person who has died any amount which would otherwise be payable under the Act to that person is to be payable to the personal representatives of that person and, by sub-s. (b) of s. 11, the rights, duties and liabilities of the personal representatives in respect of any such amount are to be the same as if it were part of the proceeds of a sale of the wool by the deceased person made at the time of the supply of the wool for appraisement. Similarly where participating wool was supplied for appraisement by a partnership which has been dissolved, any amount which would otherwise be payable under the Act to the partnership may be paid by the commission to any former partner or partners and, by sub-s. (3) of s. 10 where any such amount has been paid pursuant to the last-mentioned provision the rights, duties and liabilities of the person to whom it is paid in respect of the amount are to be the same as if it were part of the proceeds of a sale of the wool by the partnership made at the time of the supply of the wool for appraisement. At first sight it may appear that the terms of s. 11 (b) dispose of the question in this case. This would be so if the provisions of that sub-section require, in the fullest sense, that the payments made to the deceased's executor be regarded as being made in satisfaction of an obligation to account for the balance of the proceeds of a sale of the subject wool made by the deceased at the time of the supply of the wool for appraisement. In those circumstances the payment would, in law, be in discharge of a debt owed to the deceased at the time of his death. But this view of the effect of s. 11 is not open in view of the decision of the Judicial Committee in Perpetual Executors Trustees & Agency Co (W.A.) Ltd v Maslen [F1] and Federal Commissioner of Taxation v Squatting Investment Co Ltd. [F2] In the former case the Judicial Committee was concerned with a deed of assignment by which one of two former partners purported to assign "all his right title and interest in ... (d) the benefit of all contracts and engagements and book debts" to which he and his former partner might be entitled in connection with the former partnership business. The partnership had during its currency supplied participating wool and one question which arose was whether, having regard to the provisions of s. 10 (3), the view should be taken that a subsequent payment in the course of a distribution of surplus profits should be regarded as a payment in discharge of a debt existing at the time of the assignment and appropriately described by the language of the deed of assignment. The Judicial Committee held that it should not be so regarded and if the true basis of that decision is not made clear by the reasons in that case it is made abundantly so by their Lordships' reasons in the second of the two cases to which we have referred. In our view the basis of the decision in the former case is quite clear and our somewhat tentative observation is made merely in view of the argument which was advanced to their Lordships by the respondents in the latter case. In Maslen's Case [F3] their Lordships stated the competing contentions of the parties and pointed out that the respondents' argument depended upon the effect to be given to s. 10 (3). The relevant contention of the respondents and their Lordships' conclusion is stated in the following passage:
"The respondents, on the other hand, draw attention to the fact that the provisions of s. 7 (3) are stipulated to be subject to the Act, and rely on the terms of ss. 10 and 11 as distinguishing this from a case where a living partner claims the benefit of the payment. Section 10 (3), they say, no doubt authorizes payment, where a partnership is dissolved, to a former partner or his representatives. But when the money has been paid to him, his duties in dealing with it are prescribed by ss. 10 and 11. Those duties, they contend, are to treat the payment as part of the proceeds of the sale of the wool made at the time of its supply for appraisement, i.e. as if the supplier was entitled to the payment at that time. An identical obligation is, they maintain, imposed upon a personal representative under s. 11 since he is enjoined not to treat the sum paid as part of the personal estate but as having the quality of the proceeds of a sale made by the deceased supplier at the time when he furnished the wool for appraisement.
Their Lordships have to choose between these two constructions. Obviously the recipient, whether he be a former partner or a personal representative,. cannot keep the money for himself. If he be a member of a dissolved partnership, he must account to his former partner, and if he be a personal representative, he must treat the money as part of the estate which he is administering. But do the provisions go further and stipulate that it is to be dealt with as if it were the result of a contract or debt which came into existence when the wool was supplied for appraisement? So to construe the wording would be to do violence to the admitted fact that it is a gift. No doubt the wording might be clearer but prima facie the sums received are payable to the supplier and it is for the claimants to establish the contrary.
The correct view, in their Lordships' opinion, is that it is a true gift to the supplier of the wool. It is not and never was part of the assets of the partnership. If it were to be regarded as part of the assets of the partnership there would be no necessity for the provision in s. 7 (4) that where two or more persons jointly supplied participating wool they were, for the purpose of determining their claims in relation to that wool in any distribution under the Act, to be treated as one person. As partners they would be so treated, but if they are individually entitled to a gift, a provision as to their joint right to receive payment would be required. In the opinion of the Board the respondents have not made out their claim." [F4]
In the Federal Commissioner of Taxation v Squatting Investment Co Ltd [F5] their Lordships cited most of the above passage and proceeded:
"In that passage the Board rejects the suggestion that s. 10 (3) of the Act of 1948 has the result that a debt, equal to the amount of the subsequent payment, must be regarded as having been owed to the suppliers of the wool as from the date on which they supplied it. The suggestion thus rejected was the basis of the claim put forward by the assignees. They had contended that a debt of this amount must be deemed to exist at the date of supply, and as that date was prior to the assignment of 1946 the debt must be deemed to have been included in the assets assigned to them. The rejection of that suggestion, and the consequent refusal of that claim, was the only decision given by the Board in Maslen's Case." [F6] [F7]
These passages appear to us to be direct authority for the proposition that the provisions of s. 11 (b) do not operate to create, retrospectively, a debt which must be deemed to have arisen at the time when wool was supplied for appraisement. Indeed it would be strange if the legislature, in enacting ss. 10 (3) and 11 (b), intended to produce such a result with its obvious consequence in the case of partnerships which had been dissolved or persons who had died before receipt of payment made in the course of distributions under the Act and yet made no such provision in respect of that general class of persons who by surviving to the date of any such distributions would become entitled to receive their payments pursuant to the provisions of s. 7. Perhaps it may be said that if the legislature intended that payments made in the course of any distribution should be regarded as having been made in discharge of obligations arising at the time of the supply of participating wool and existing from then until the date of payment some provision appropriate to produce this result might have been inserted in or in relation to s. 7 and that, if this course had been adopted, there would have been no necessity thereafter to make special provision for the death or bankruptcy of any supplier after the date of supply and before payment. In such circumstances the interest, retrospectively created, of any such person would be regarded as devolving upon his trustee in bankruptcy or his executor or administrator as the case might be. There is, we think, no doubt that the provisions of s. 11 (b) operate only to impress the amount of payments, when made, with a particular notional character in order that the legislature's intentions with respect to the beneficial destination thereof might be effectuated and, in our opinion, the two decisions of the Judicial Committee to which we have referred are authority for this proposition. It should be observed that the subject matter which assumes the specified character is the amount which is paid to the legal personal representative and that specified character is assumed only when it is paid. The sub-section does not purport to create any antecedent right to receive payment or to invest with any specified character the right to or expectation of payment which may be said to arise from other provisions of the Act. Accordingly no support for the impeached assessment can be obtained from its provisions.
The next question for consideration is whether the other provisions of the Act confer upon a supplier of participating wool any right or interest which may for the purposes of the Estate Duty Assessment Act be regarded as the personal property of the deceased. Speaking of the provisions of s. 8 of that Act Dixon J. (as he then was) in Thomson's Case (Perpetual Executors & Trustees Association of Australia Ltd v Federal Commissioner of Taxation) [F8] said:
"Section 8 (1) of the Estate Duty Assessment Act 1914-1942 provides that duty shall be levied and paid upon the value as assessed under the Act of the estates of deceased persons. Sub-section (3) states what, for this purpose, the estate of a deceased person shall comprise. The relevant part of the sub-section is contained in paragraph (b) and consists in the simple expression `his personal property'."
No doubt this expression is of the widest character and covers every form of personal property recognized at law or in equity, every possible interest including all choses in action. But it cannot be satisfied unless some right cognizable at law or in equity exists in the deceased. An expectation, however well founded in fact, and however well warranted by political or business considerations, will not do, if it is devoid of legal title". [F9] . We respectfully agree with these observations and it is with their significance in mind that the other provisions of the Wool Realization (Distribution of Profits) Act must be approached and considered. But before going to them it is convenient to make two other preliminary observations. The first of these is that it is clear that before the passing of the Act no supplier of participating wool had any right or interest in the future surplus profits which could, upon any meaning of the term, be classified as property. Commissioner of Stamp Duties (N.S.W.) v Perpetual Trustee Co Ltd (Watt's Case) [F10] is clear authority for this. The facts of that case showed, to use again the language of Dixon J. (as he then was) in Thomson's Case [F11] that:"The antecedent certainty that the deceased in that case or his estate would participate in the profits in question could not have been greater if it had rested on legal right, but it did not, and as the distribution was made after his death the share received by his executors formed no part of his dutiable property" [F12] . The other preliminary observation which we wish to make is that the question whether the Act, the operation of which commenced before the deceased died, conferred upon the deceased in his lifetime any right or interest in the nature of property must be considered quite independently of those events which occurred after his death. For if the Act conferred some such right or interest upon him it would be of no consequence in reaching that conclusion that no surplus profits subsequently accrued or that no payments out of ascertained surplus profits were subsequently made. Likewise if the Act did not confer any such right or interest upon him in his lifetime it would be quite immaterial that later events showed that if the deceased had survived he would have received substantial payments, or that, not having survived, other persons received payments pursuant to the special provisions of s. 11. In the latter case the payments or the beneficial interests in them would be received by such persons not by way of devolution from the deceased but in substitution for him.
The Act is expressed to be an Act to provide for the distribution of any ultimate profit accruing to the Commonwealth under the Wool Disposals Plan, and for other purposes. As a condition precedent to any distribution s. 5 provides that as soon as practicable after the wool disposals profit has been ascertained, the Treasurer shall notify the amount thereof in the Gazette, and the amount so notified shall, for all purposes of the Act, be the amount of the wool disposals profit. The provisions of s. 6 authorize what may be called interim distributions after the making of a declaration by the Minister for that purpose with the approval of the Treasurer. Thereupon s. 7 provides that, subject to the Act, an amount equal to each declared amount of profit shall be distributed by the commission in accordance with the Act. The general basis of distribution is prescribed by sub-ss. (2) and (3) of s. 7 and those subsections are in the following terms:"(2) There shall be payable by the commission, out of each amount to be distributed under this Act, in relation to any participating wool, an amount which bears to the amount to be distributed the same proportion as the appraised value of that wool bears to the total of the appraised values of all participating wool. (3) Subject to this Act, an amount payable under this Act in relation to any participating wool shall be payable to the person who supplied the wool for appraisement". Part IV of the Act deals with the general method of distribution but it is not necessary to refer to those provisions in detail. That Part deals with the preparation of a list of those persons who, in the opinion of the commission, are entitled to share in distributions under the Act and with the obtaining and recording of relevant information. Section 28 provides that no action or proceedings shall lie against the commission or the Commonwealth for the recovery of any moneys claimed to be payable to any person under the Act, or of damages arising out of anything done or omitted to be done by the commission in good faith in the performance of its functions under the Act, while s. 29 provides that subject to the Act and the regulations, a share in a distribution under the Act, or the possibility of such a share, shall be, and be deemed at all times to have been, absolutely inalienable prior to actual receipt of the share, whether by means of, or in consequence of, sale, assignment, charge, execution or otherwise.
These provisions, it is said by the respondent, were enacted at a time when it was apparent that large surplus profits would be available for distribution and it was with this circumstances in mind that the Act was passed. We take this to mean that at the time the Act was contemplated and passed it was not merely possible but practically certain that there would be surplus profits available and that the Act was intended to provide for their future distribution in some equitable manner. With this statement we agree but it leaves untouched the vital question whether the Act conferred upon the deceased in his lifetime any right or interest in the nature of property. Whether or not it did this can be ascertained not by an appreciation of the general purpose for which the Act was passed but by an examination of the provisions of the Act itself. The question is did the Act during the life of the deceased vest in him any right or interest which could, properly, be described as his "personal property"? Counsel for the respondent did not, of course, baulk at this inquiry but rather sought to examine the Act in the light of his general statement as to its purposes and we have merely paused in order to indicate that consideration of its general purposes will not help in determining the particular question involved. Consideration of the provisions of the Act lead us to the view that it did not, and did not intend, to create, immediately, private rights of any description. We agree, of course, that in the circumstances in which it was passed it produced a situation in which the certainty that the deceased or some other person in substitution for him "would participate in the profits in question could not have been greater if it had rested on legal right". But the Act created this certainty, not by creating present rights, but by providing that the surplus profits when ascertained and after an appropriate declaration should be distributed. In the meantime, the expectation of the supplier did not, as far as we can see, present one single attribute of "a right cognizable at law". The fact that it was not open to a supplier to secure a share of any undistributed profits by legal process may not, of itself, be of great significance for many illustrations may be given of "property" which does not possess this attribute. A classic illustration is the proprietary interest of an owner of chattels which will continue to subsist although he is not in possession of them and his right to sue for their recovery has become statute barred. Nevertheless, he is still the owner of them and may assert his right as owner by retaking possession of them (cf. Williams on Personal Property, 16th ed. (1906), at pp. 28, 29). Other interests not enforceable by action, such as foreign government securities, are so much a subject of trade that it would be idle to deny that a holder, being possessed of a saleable commodity, is not the owner of property. It should, perhaps, be mentioned that the absence of a right to resort to legal process is not a feature of a Commonwealth Government security (cf. McGrath v The Commonwealth [F13] ) and the creation of securities which do not afford such a right would be regarded in the Commonwealth, at least, as unusual. Many other illustrations may be given but in each one it will, we think, be found that the interest under consideration possesses, at least, some of the attributes of "property" which are capable of enjoyment by the owner.
The case of the respondent would, we think, be stronger if upon consideration of s. 7 of the Act alone, it were assumed that its provisions conferred a right upon every person who had supplied participating wool for appraisement. On that hypothesis it might be said that the provisions of ss. 28 and 29 do not annihilate the right previously given. We think, however, that this is not a permissible approach to the question whether the Act operated to create interests in the nature of "property" and that this question can be determined only upon a fuller examination of the provisions of the Act. In any such examination ss. 28 and 29 must be considered, not for the purpose of determining whether their provisions annihilate a right previously given, but for the purpose of determining whether the effect of the legislation was to create rights at all. As we have already said the expectation of a person who had supplied participating wool for appraisement bore none of the indicia of "a right cognizable at law". It did not confer any benefits capable of enjoyment; it could not be disposed of or charged and upon the making of any distribution after the death of the supplier the appropriate payment would be made to his legal personal representatives. The provisions of s. 11 were designed to operate in respect of payments made after the death of a supplier, even if he had in his lifetime purported in the clearest language to dispose of his expectation otherwise. Further, his expectation was not property for the purposes of judicial execution, nor would it pass, upon bankruptcy, to the official receiver. It is true that, with significant exceptions, s. 9 makes provision for payments to be made to the trustee in bankruptcy if, at any time after the supply of participating wool for appraisement, the affairs of the supplier have been administered in bankruptcy, but this consequence follows as the result of the special provisions of the section and not because the expectation is "property of the bankrupt". Indeed, it seems that the provisions of s. 9 would operate notwithstanding an order of discharge under s. 119 of the Bankruptcy Act 1924-1950 and in spite of the provisions of s. 91 of that Act insofar as they specify that the property of a bankrupt divisible among his creditors shall include all property which belongs to or is vested in the bankrupt, or is acquired by or devolves on him before his discharge. Section 10 makes special provision for other cases. Where the supplier was a company which has become defunct the payment which otherwise would be made to the company is to be made to "such person as appears to the commission to be justly entitled to receive it". The exercise of the discretion conferred by this section appears to us to be inconsistent with the proposition that prior to its dissolution the expectation which the company had enjoyed constituted its "property" in any sense. Considerations such as these lead us to think that it would be erroneous to say that s. 7 created rights "cognizable at law" and that the succeeding sections did no more than make appropriate provision for the devolution and transmission of the "property" of the supplier of participating wool for appraisement. In our view the Act did not create interests in the nature of property and did not purport or intend to make provision for devolution and transmission of the interest of a supplier. Rather it declared the policy of the legislature with respect to such surplus profits as might arise and, in doing so, selected, primarily, as the objects of any future distribution, the suppliers of participating wool for appraisement whilst, in the circumstances respectively specified in ss. 9, 10 and 11 the provisions of those sections were designed to take effect in substitution for the provisions of s. 7. In these circumstances we find it impossible to regard the expectation created by the Act as property for the purposes of the Estate Duty Assessment Act. Such an expectation was not, so far as we are able to see, property for any other purpose and we can see no reason why it can be so regarded for the purposes of that Act.
The view we have formed renders it unnecessary to consider the other points raised by this appeal and for the reasons which we have given the appeal should be upheld.