National Trustees Executors and Agency Co of Australasia Ltd v Federal Commissioner of Taxation
91 CLR 5401954 - 1129B - HCA
(Judgment by: Fullagar J)
Between: National Trustees Executors and Agency Co of Australasia Ltd
And: Federal Commissioner of Taxation
Judges:
Dixon CJ
McTiernan J and Taylor J
Fullagar JKitto 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
Judgment by:
Fullagar J
FULLAGAR J. In this case I have had the advantage of reading the judgment prepared by Kitto J. So far as it deals with the question whether the benefits derivable by the late Mr. Cain or his executor under the Wool Realization (Distribution of Profits) Act 1948 were part of his personal property at his death for the purposes of the Estate Duty Assessment Act 1914-1947, I am in complete accord with that judgment, but there are one or two observations that I wish to add.
Some reliance was placed by the appellant on s. 11 of the Act of 1948. I might have felt more difficulty over that section if I had not found occasion to consider it alongside s. 10 (which was the then immediately relevant section) in Maslen v Perpetual Executors Trustees & Agency Co (W.A.) Ltd, [F14] at pp. 126-127. I then formed the view, which I have seen no reason to change, that the effect of s. 11 (b) was that the executor or administrator received the deceased person's share of the wool profit as executor or administrator, and was required to deal with it as part of the deceased person's estate. As from the moment of receipt it was to assume in the hands of the executor or administrator the character of the proceeds of a sale of wool in the lifetime of the deceased. It would be available for payment of the debts of the deceased. I thought that it might have been specifically bequeathed by will, s. 29 applying only to dispositions inter vivos. I thought also that it would pass under a general bequest of personalty, and that, in the case of an intestacy, the beneficial interest would belong to the persons entitled under the relevant statutes of distribution. I cannot find anything in the judgment of their Lordships, when the case went before the Privy Council [F15] to cast any doubt on the views which I expressed on s. 11, and, if those views are correct, they seem to me not merely to dispose of any argument based by the appellant taxpayer on that section, but to provide a strong argument for the commissioner. It is not merely that s. 11 does not express a purely arbitrary choice of recipient. On the contrary, the real benefit which it gives is not substitutional but derivative. The testator had an interest, which was not contingent on his survival to any particular time. It was something which was within his disposition post mortem, and would have been within his disposition inter vivos if it had not been for the express provisions of s. 29. The case thus differs widely from such cases as Lord Advocate v Bogie [F16] .
The position can be put in another way. There are theoretically three points of time as at which s. 11 may become operative-(1) the date of the commencement of the Act, (2) the date of the publication in the Gazette of the notice under s. 6, and (3) the date of actual payment. But it seemed to me in Maslen's Case [F17] and it still seems to me, that the only reasonable and practicable view is that s. 11 applies wherever the death of the supplier has occurred before actual payment is effected. For all purposes of the present case the date of the death of Mr. Cain is the material date. He died after the commencement of the Act, but before any payment was made. As at that date the position was governed by s. 7 of the Act. If at that date s. 7 gave him a right, which was part of his estate, within the meaning of the Estate Duty Assessment Act, that position could not be altered or affected by s. 11 unless that section had the effect of depriving him of that right in the event of his death before payment. But, so far from depriving him of what s. 7 gave him, s. 11 really gives effect to that right in the only way in which effect can be given to it, viz. by directing payment to his personal representatives.
I felt at one stage some difficulty in distinguishing from the present case the cases of Commissioner of Stamp Duties (N.S.W.) v Perpetual Trustee Co Ltd (Watt's Case) [F18] and Perpetual Executors & Trustees Association of Australia Ltd v Federal Commissioner of Taxation (Thomson's Case) [F19] . I think, however, that each of these cases is clearly enough distinguishable.
So far as Watt's Case [F20] is concerned, there seems indeed to be some force in what is said by Higgins J. in his dissenting judgment [F21] . But the position at Mr. Watt's death was very materially different from the position at Mr. Cain's death. Watt died on 21st May 1921. Before that date the company commonly known as "Bawra" had been incorporated, and it had been agreed between that company and the Central Wool Committee that the company would "issue in the names of such companies firms and persons as the Central Wool Committee (for and on behalf of the Commonwealth Government) should nominate" 12,000,000 shares and PD10,000,000 "priority wool certificates", with a proviso for cash payments to be made in certain cases. But it was not until 12th July 1921 that the Central Wool Committee nominated the "companies firms and persons" who were to receive shares, certificates and cash. Before that date, in the view of the majority of the Court, it was impossible to say that any company, firm or person, had any right of any sort or kind against the Commonwealth or the Central Wool Committee or Bawra. In the present case Cain died on 30th April 1949, and the Wool Realization (Distribution of Profits) Act had come into force on 21st December 1948. That Act did, in my opinion, confer rights-contingent rights, it is true, but rights in the relevant sense.
In Thomson's Case [F22] in the view of the majority of the Court, nothing in the nature of a right ever came into existence. The Commonwealth had simply made certain refunds of income tax, which it was under no obligation to make. In Thomson's Case [F23] the payment was not made until after death, and there could not be said to have been, at the date of death, anything more than a hope or belief that the payment would be made: there was not even, as there was in Watt's Case [F24] an expectation founded on an honourable understanding and a long course of conduct. Dixon J. (as he then was) referring to the expression "his personal property" in s. 8 (1) (b) of the Estate Duty Assessment Act, said:"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" [F25] . And his Honour refers to Watt's Case [F26] . It is plain from what follows in his judgment that his Honour was not here using the word "cognizable" as meaning "enforceable by action or suit". He was referring to a right existing by virtue of the common law or of equity. For he says: "There are of course rights cognizable at law which, under the distinction English law draws between the existence of a right and the existence of a remedy, may not be enforceable" [F27] . The distinction, though often criticised from a theoretical point of view, is, of course, a commonplace of English law, and is capable of involving important practical consequences.
It is, I think, such a right that is given by the Act of 1948. Before the Act there had been an expectation-"well founded in fact" and "well warranted by political and business considerations"-but no more than an expectation. After the Act there was, in my opinion, a right. It was, of course, at Mr. Cain's death a contingent right, because it depended on the taking of various steps by the Treasurer and the Minister. But, if and when those steps were taken, it became an accrued right, and, if it were not for the express provisions of s. 28, it would be enforceable by action against the Wool Realization Commission. It was obviously of value, and, if it were not for the express provisions of s. 29, it would be readily saleable even before it became an accrued right. It was, in my opinion, property within the meaning of the Estate Duty Assessment Act. It would have to be valued as at the date of Mr. Cain's death, but valuation would present no serious difficulty. The conclusion that it should be regarded as part of his estate is, I think, supported by much that was said in Ritchie v Trustees Executors & Agency Co Ltd [F28] and Squatting Investment Co Ltd v Federal Commissioner of Taxation [F29] . In the former case, for example, it is said that the Act of 1948 converted "the expectations which existed into claims which, though not actionable, became claims with a legal foundation" [F30] . In the latter case it was held by the Privy Council that the payments made were the proceeds of a business carried on by the taxpayer. There is real difficulty in saying that a claim with a legal foundation (even though not enforceable by action) to receive proceeds of a business carried on by him is not an asset-property-in the hands of a man who dies before actual payment is made.
The other question in the case is whether the commissioner had power to amend his original assessment of estate duty. On this question also I am in accord with Kitto J., but I have felt some difficulty over it, and again I wish to add a few words. This question arises in this way. Section 10 of the Estate Duty Assessment Act requires an executor to furnish to the commissioner "a full and complete return of all the estate in Australia" of his testator. I think that I ought to have included in the case, which I stated, a copy of the return lodged in this case, but its omission seems to be of no consequence, because it is common ground that no reference was made in it to any actual or contingent rights of the testator in respect of profits arising out of the wool scheme. On or about 5th December 1949 the appellant company received from the Wool Realization Commission through the testator's brokers a cheque for a sum of PD2,816 15s. 9d. This sum represented the share of the testator, or his estate, in a first distribution made under the Act of 1948, and was calculated as six and one-quarter per cent of the appraised value of wool which had been submitted by the testator for appraisement less a small sum for broker's commission. On 3rd November 1950 the solicitors of the appellant wrote to the commissioner a letter saying: "Re Estate of Walter C. C. Cain deceased: We have been instructed to advise you of the following additional asset-Appraised value of participating wool held by Australian Wool Realization Commission PD45,295 2s. 2d.-6¼% of which is PD2830 18s. 10d." The amount stated was the gross amount before deducting broker's commission. All these things took place before the commissioner made any assessment of estate duty.
The original assessment was notified to the appellant company on 9th March 1951. The notice of assessment was accompanied by a statement showing certain alterations which had been made in the dutiable estate as shown by the return. These alterations included an addition of "Wool payments as advised 3/11/50 - PD2831." The duty so assessed was paid in due course. On or about 28th March 1952 the appellant company received from the Wool Realization Commission a second cheque for PD2,816 15s. 9d. in respect of a second distribution under the Act of 1948. The amount was calculated in exactly the same way as in the case of the first payment. The appellant company did not at any time inform the commissioner of this second payment. The fact that it had been made was first discovered by the commissioner in the course of what is described as a "routine search" at the Victorian Probate Duty Office on 20th May 1952. On 30th May 1952 the commissioner issued a notice of the amended assessment which is now challenged. The amendment added to the gross value of the estate "Second Wool Distribution-PD2831". Certain consequential amendments were necessitated by this addition, and the net amount of additional duty claimed was PD131 13s. 4d.
The question whether the amendment of the original assessment was authorized by law depends on s. 20 of the Estate Duty Assessment Act. It is not, I think, irrelevant to observe at the outset that the situation to which that section has to be applied was one in which both the taxation office and the taxpayer thought that the Act of 1948 had, or probably had, brought an asset into existence, but neither had any clear conception of the nature of the asset. Actually, the question whether the benefit given by the Act of 1948 was "property" of the testator, and therefore part of his dutiable estate, was itself a question of very considerable difficulty. But, if that question were to be answered in the affirmative, the position was quite clear, and it is not now in dispute. The position was not that payments made under the Act had to be added to the gross value of the estate, as and when received. It was simply that the value, as at the testator's death, of future payments receivable under the Act had to be included in the estate, and duty assessed and paid once and for all. Both the original assessment and the amended assessment, therefore, proceeded on a wrong basis. I do not know that even now it is placed beyond doubt that assessment on a correct basis would have led to more duty being payable than has in fact been paid, but I should think it could be safely assumed that this would be so, and it has in fact been assumed throughout. The case states that the commissioner became aware in or about July 1951 of the facts which it would be necessary to know in order to make something like an accurate valuation, but the facts necessary for making a valuation were readily ascertainable before the date of the original assessment, and at no stage would a valuation have presented any serious difficulty.
I do not think that it is possible for the commissioner to justify the amended assessment under sub-s. (3) of s. 20. That sub-section applies where the executor has made, before assessment, "a full and true disclosure of all the material facts necessary for the making of an assessment", but it authorizes only amendments "to correct an error in calculation or a mistake of fact". Clearly there had been no error in calculation, and the mistake which had been made by the commissioner was one of law and not of fact. Nor, for that matter, did the amended assessment make any attempt to correct the mistake which had really been made.
If, therefore, the amended assessment is to be justified, it must be under sub-s. (2) of s. 20, and this means that the commissioner must establish that the executor did not make, before the original assessment, a "full and true disclosure of all the material facts necessary for the making of an assessment." It is quite clear, I think, that the original return under s. 10 did not make the necessary full disclosure. I have already said that I think it must be taken that that return contained no reference to anything that might belong or accrue to the estate under the Act of 1948. It would, of course, be nothing to the point to say that the executor honestly believed that any "rights" given by the Act were not "property". To omit an asset in the honest but mistaken belief that it is not an asset is to fail to make the full disclosure which s. 20 (2) requires. But did the letter of 3rd November 1950 (which has been set out in full above) make the necessary "full disclosure"? I have felt some doubt about the matter. Section 10 (2) requires the executor to "set forth the descriptions and values of the items comprising the estate", and, with regard to the "item" in question, the letter certainly did not do that. I would think, however, that there might be full and true disclosure for the purposes of s. 20, although there was not a strict compliance with s. 10. On the other hand, I would be disposed to take a very strict view of what is meant by full disclosure, and, generally speaking, I would hold (as I held in Australasian Jam Co Pty Ltd v Federal Commissioner of Taxation [F31] ) that it is not enough for the taxpayer to disclose so much as might be expected to cause the commissioner to ask questions or make inquiries.
I have, however, come to the conclusion that the letter does make sufficient disclosure of the facts necessary for the making of an assessment. The executor knew that the distribution was an "interim distribution", because the "credit note" accompanying the payment had told him so, and the executor did not expressly tell the commissioner that the payment represented an interim distribution. On the other hand, it did tell the commissioner, in effect, that the testator had supplied participating wool for appraisement during his lifetime to an appraised value of PD45,295 2s. 2d. The letter is, on its face, highly ambiguous. But in truth it is not merely ambiguous. It is practically meaningless unless it is read in the light of a knowledge of the "wool scheme" and of the provisions of the Act of 1948. And the decisive factor to my mind is that these matters were more or less matters of general knowledge-at least in a world in which the commissioner must be presumed to dwell-and the case stated sets out that the commissioner was at all times material aware of the provisions of the Act of 1948, and believed that "a further distribution of profits" under that Act would be made "over and above that referred to in the letter" of 3rd November 1950.
In the end it has seemed to me that, on the one hand, to one who has no knowledge of the wool scheme and the Act of 1948, the letter of 3rd November is simply unintelligible, while on the other hand, to one who has such knowledge, the true position must appear clearly enough even through the inaccurate and garbled language of the letter. It must appear to such a person that during the war the testator supplied wool for appraisement to a total value of PD45,295, that that wool was catalogued as wool entitled to participate in any profit resulting from the wool scheme, and that his estate has received, or become entitled to receive, six and one-quarter per cent of the appraised value, which is PD2,831. I think the letter would be so understood in the taxation office: that it was in fact so understood may almost be inferred from the language of the notice of assessment. Given the assumed knowledge, I do not think that the commissioner needed to be told more than the letter told him, and I think that there was full and true disclosure. It follows that the amendment of the original assessment was not authorized by s. 20 of the Estate Duty Assessment Act.