Re Alex Russell, deceased VR 285
(Judgment by: McInerney J)
Re Alex Russell, deceasedCourt:
Sale of land by testator to company
Part of purchase price satisfied by the issue of preference shares
General power of appointment
Power to dispose of property
Testator with right to convert preference shares to ordinary shares
Testator died without exercising right to convert shares
Right ceasing on death
Gift inter vivos
Administration and Probate Act 1958 (No. 6191) - s 100; s 104(1)(b); s 104(1)(f); s 104(1)(j)
Probate Duty Act 1962 (No. 6890) - s 7(1)(b); s 7(1)(f); s 7(1)(j)
Judgment date: 15 February 1967
This is an appeal pursuant to s19 of the Probate Duty Act 1962 (Act No 6890, as amended) by Jess Lucy Russell, James Ford Strachan and Ross Gibson Macfarlan (as executors of the will of Alex Russell deceased) against an assessment for probate duty issued by the Commissioner of Probate Duties on 4 June 1964 and subsequently amended, in a respect here immaterial, on 16 July 1964.
The deceased, Alex Russell, died on 22 November 1961. An affidavit and statement for probate duty lodged by the executors on 12 July 1962 showed a balance for duty of 315,000 pounds 11s4d. Among the assets shown were 20,005 preference shares of 1 pound each in a company named Wangata Ltd., valued at their face value.
On 4 June 1964 the Commissioner for Probate Duties issued an assessment to probate duty, notice of final balance and duty payable. This assessment showed the final balance of 396,145 pounds 0s4d. on which duty was assessed at 105,444 pounds 12s 8d. from which there was to be deducted at the lower duty, under s35,1000 pounds and a rebate or reduction of 175 pounds 17s 11d. under s24 of the Act leaving a net balance of duty payable of 104,268 pounds 14s 9d.
This assessment was accompanied by an alteration sheet which showed that to the balance for duty as lodged by the executors the Commissioner had added, in respect of gifts, two sums of 80,000 pounds and 1544 pounds 10s. increasing the net balance to 396,545 pounds 1s 4d. from which was deducted income tax of 400 pounds 1s. leaving a final balance of 396,145 pounds 0s 4d. on which the duty calculated was as set out in the assessment.
The alteration sheet did not contain any explanation of the additions made by the Commissioner but the assessment and alteration sheet was accompanied by letter dated 4 June 1964 which showed that the additional amount of 80,000 pounds had been included in connexion with the transaction between the deceased and a company named Wangata Ltd.
No explanation is given either in the alteration sheet of 4 June 1964, or in the accompanying letter of that date as to the reason for the inclusion of the additional item of 1544 pounds 10s. but no point has been made in respect of that item and it is not the subject of any objection.
On 16 July 1964 the Commissioner issued an amended assessment accompanied by an amended alteration sheet. This amended alteration sheet and amended assessment brought into the credit of the deceased, as a further deduction (under s118 of the Administration and Probate Act 1958) a sum of 1868 pounds 4s 7d. Nothing turns on this deduction.
On 20 August 1964 the appellant executors lodged with the Commissioner objection in writing against the assessment, pursuant to s19(1) of the Probate Duty Act 1962. On 10 February 1965 the Commissioner gave notice to the executors of his disallowance of their objection. On 23 February 1965 the executors, pursuant to s19(4), requested the Commissioner to treat their objection as an appeal and to cause it to be set down for hearing. On 24 March 1965 the Commissioner by notice in writing addressed to the appellants required them to give further and better particulars of their objections. The further particulars so requested were furnished by the executors by a document dated 30 April 1965. On 13 January 1966, the Crown Solicitor, as solicitor for the Commissioner, set the matter down for hearing before the judge in chambers on 1 February 1966, on which day Starke, J, made an order referring the matter into the Miscellaneous Causes List.
On 28 October 1966 the parties filed in court a document entitled "Agreed Statement of Facts".
The Probate Duty Act 1962 (Act No. 6890) was assented to on 15 May 1962 and by notice published in the Government Gazette on 13 June 1962 was proclaimed to come into operation on 1 July 1962: see s1(2) of the Act. The testator's death on 22 November 1961 occurred before the commencement of the Act. By virtue of s2(2) of the Probate Duty Act 1962 the provisions of s100, s104, s105, paragraph (c) of s106, s107, s116, s118 and s134, of the Administration and Probate Act 1958 and the Third Schedule to that Act apply to the estate of the deceased. By virtue of s2(1) of the 1962 Act the provisions of s4, s6, s7, s8, s9, s10, s17, s23 and s35 of the Probate Duty Act 1962 and the First Schedule to that Act are applicable with respect only to the estates of persons dying on and after the commencement of the Act. Those provisions are, therefore, not applicable to this estate. Save as aforesaid the provisions of the Probate Duty Act 1962 apply to and with respect to the estates of persons dying before, on or after the commencement of this Act: see s2(4). In the result, the definition section (s4) of the 1962 Act is inapplicable, and one must look to the definition section (s100) of the 1958 Act with respect to this estate. S106(a) of the 1958 Act is not applicable to this estate: in its place s16 of the 1962 Act is applicable. S19 of the 1962 Act is also applicable and, consequently, this appeal is regulated by its provisions.
At the hearing before me the parties relied on the "Agreed Statement of Facts" supplemented, however, in the case of the appellants, by oral evidence of Robert Russell Aitken, Ross Gibson Macfarlan and Philip Russell and by the tender of various documents including the probate duty return, assessments, alterations sheets and letter of the Commissioner dated 4 June 1964 hereinbefore referred to, as well as the minute book and articles of association of Wangata Ltd. and the four deeds of settlement dated 17 December 1960 referred to in the "Agreed Statement of Facts".
No evidence was tendered by the respondent.
It is convenient now to set out the facts established before me.
On 7 December 1960 Wangata Ltd. (hereinafter called the "company") was duly incorporated under the Companies Act 1958 in the State of Victoria as a public company. The memorandum of association is dated 8 November 1960 and is signed by five people as subscribers, namely, Ross Gibson Macfarlan, Robert Russell Aitken, Alistair Bothwick Nicholson, Thelma Riviere Knox and Albert Harvey Copley. The first two are and were at all times members of the firm of Messrs. Aitken, Walker and Strachan, the solicitors for the deceased Alex Russell. The remaining three were at that time employees of Messrs. Aitken, Walker and Strachan.
The company was incorporated with a nominal capital of 50,000 pounds divided into 20,000 preference shares of 1 pound each and 30,000 ordinary shares of 1 pound each. However, at an extraordinary general meeting held on 21 December 1960 it was resolved that the capital of the company be increased to 51,000 pounds by the creation of 1000 additional preference shares of 1 pound each, ranking for dividend and in all other respects pari passu with the existing preference shares in the company. CL5 of the memorandum of the association is in these terms:
"The capital of the company is fifty-one thousand pounds (51,000 pounds) divided into twenty-one thousand (21,000) preference shares of one pound (1 pound) each and thirty thousand (30,000) ordinary shares of one pound (1 pound) each. The said preference shares shall confer on the holder the right to be paid out of the profits of each year a fixed dividend for such year at the rate of eight pounds per annum (8 pounds p.a.) on the capital for the time being paid up thereon and such shares shall rank in a winding up as regards return of capital in priority to the ordinary shares, but shall not confer the right to any further participation in profits or assets. The holder or holders of the said preference shares shall not be entitled to attend and vote at general meetings of the company except on any question directly affecting any of the rights or privileges attached to such preference shares. Alex Russell shall during his lifetime be entitled to deliver at the registered office of the company notice in writing of his desire to convert the whole or any part of the preference shares in the company, of which he shall for the time being be the holder into ordinary shares, and thereupon the same shall be deemed to be converted accordingly and shall thenceforth rank pari passu with and confer the same rights and privileges in all respects as the other ordinary shares in the capital of the company. Upon any increase of capital, the company shall be at liberty to issue any new shares with any preferential qualified or deferred rights, privileges or conditions attached thereto."
No articles of the association of the company were adopted until 22 December 1960 when the articles tendered in evidence were adopted by the company in general meeting. These articles were not registered until 13 January 1964. Prior to that date, therefore, the regulations contained in Table A of the Companies Act 1958, so far as applicable, were the articles of the company in the same manner and to the same extent as if they had been contained in duly registered articles: see s25(2) of the Companies Act 1958.
Article 2 of Table A provides:
"Without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, shares in a company may be issued by the directors and any such share may be issued with such deferred, or other special rights or such restrictions, whether in regard to dividend, voting, return of capital or otherwise, as the directors, subject to any ordinary resolution of the company, determine."
Article 40 provides:
"The company may from time to time by ordinary resolution increase the share capital by such sum to be divided into shares of such amount as the resolution shall prescribe."
Article 62 provides:
"The number of the directors and the names of the first directors shall be determined in writing by the subscribers of the memorandum of association or a majority of them."
Article 70 provides:
"The shareholding qualifications for directors may be fixed by the company in general meeting, and unless and until so fixed shall be one share."
On 8 December 1960 the subscribers to the memorandum of association of the company, in pursuance of the power conferred by art. 62 of Table A, determined that the first directors of the company should be Philip Russell, Ross Gibson Macfarlan and Robert Russell Aitken. It is common ground that these three persons are and have at all material times been the only directors of the company.
On 17 December 1960 Alex Russell paid the sum of 5 pounds by cheque to the credit of the company in the trust account of Messrs. Aitken, Walker and Strachan. This payment was for the allotment moneys in respect of the five subscribers' shares of 1 pound each in the company. All these shares were held on trust for the deceased, and the agreed statement of facts annexes and refers to declarations of trust by each of the five subscribing shareholders acknowledging that the one share held by that subscriber is held on trust for Alex Russell. On 17 December 1960 Alex Russell paid four sums of 2500 pounds (10,000 pounds in all) to the credit of Messrs. Philip Russell, Ross Gibson Macfarlan and Robert Russell Aitken, as trustees, in the trust account of Messrs. Aitken, Walker and Strachan. On the same day there were executed between the testator Alex Russell and the three persons last named as trustees four deeds of settlement whereby in each case the sum of 2500 pounds was settled on trusts therein declared in favour of Alexander Fairbairn Russell, Ian Hunter Russell, Susan Heather Russell, and Carolyn Russell respectively (all being grandchildren of the testator). It is unnecessary to consider the terms of these deeds of trusts for nothing turns on them in relation to the present appeal.
At a meeting of directors held on 17 December 1960 it was resolved that the five ordinary shares in the capital of the company taken up by the subscribers be allotted to such subscribers upon such subscribers executing declarations of trust in respect of such shares in favour of Alex Russell. The minute recites that declaration of trust to the satisfaction of the directors were produced to the meeting and that the five shares were then allotted.
The minutes of the same meeting record that the engrossment of an agreement between Alex Russell and the company for the purchase by the company from Alex Russell of 4395 acres 1 rood 8 perches of the freehold property "Mawallok" near Beaufort was produced to the meeting and approved and that it was resolved that the company seal be affixed to such agreement.
That agreement forms part of the agreed statement of facts and is annexed thereto. It recites that Alex Russell is registered as the proprietor of the lands thereinafter described and is beneficially entitled to the whole of the issued company capital of Wangata Ltd., and recites further that he has agreed to sell the land to the company. CL1 of the agreement provides that the vendor (Russell) shall sell and the purchaser (the company) shall purchase all that portion of "Mawallok" property of the vendor comprising 4395 acres 1 rood 8 perches together with the improvements erected thereon, the purchase money to be the sum of 109,882 pounds, 10s. calculated at the rate of 25 pounds per acre.
"The purchase money shall be paid or justified as follows:--"As to the sum of one hundred thousand (100,000 pounds) by the allotment to the vendor on 21 December 1960 of twenty thousand (20,000) eight per cent preference shares of a pound each in purchasing company at a premium of four pounds (4 pounds) per share."As to the sum of nine thousand eight hundred and eighty-two pounds ten shillings (9882 pounds 10s.) by payment to the vendor in cash within sixty days of the date of the settlement."
"The purchaser shall be deemed to have accepted title and having allotted to the vendor the shares referred to at CL2 hereof shall be entitled to possession and to receipt of the rents and profits of the said land and improvements."
It appears probable that the words "and having allotted" should read "and upon allotting."
"The vendor shall upon payment in full of the purchase money execute and give to the purchaser such transfers conveyances of the lands hereby to be sold as the purchaser may reasonably require."
The remaining provisions of the contract do not seem to be material. It is agreed (paragraph 10 of the agreed statement of facts) that the value of the land at the date of the Wangata agreement was 109,882 pounds 10s.
At the date of the agreement the only assets of the company (other than its rights under the Wangata agreement) consisted of the allotment moneys in respect of the five subscribers' shares, and its only liabilities (other than its liabilities under the Wangata agreement) consisted of its subscribed capital.
The agreement was executed by the deceased and duly sealed by the company in accordance with its articles of association. On 21 December 1960 the deceased executed an instrument of transfer whereby he transferred to the company the Wangata land. That instrument of transfer was subsequently duly registered under the Transfer of Land Act 1958.
On 21 December 1960 the Registrar of Companies gave his certificate under s33(3) of the Companies Act 1958 in relation to the company.
At an extraordinary general meeting of the company held on 21 December 1960 the necessary resolution (already referred to) for increase in the capital of the company to 15,000 pounds by the creation of a further 1000 additional preference shares of 1 pound each was agreed to. On the same day (but apparently subsequently to the general meeting just referred to) a meeting of the directors of the company resolved that 20,000 eight per cent preference shares of 1 pound each capital of the company be allotted to Alex Russell at a premium of 4 pounds per share in pursuance of the agreement dated 17 December 1960 between Alex Russell and the company and that the seal of the company be affixed to the certificate in respect of such shares.
At a meeting of the directors of the company on 22 December 1960 (held apparently subsequently to the general meeting which adopted the articles) it was resolved that the company allot 2000 ordinary shares of 1 pound each paid up for cash at a premium of 4 pounds as follows:
"500 ordinary shares of 1 pound each fully paid in the names of Philip Russell, Ross Gibson Macfarlan and Russell Aitken in No. 1 account. 500 ordinary shares of 1 pound each fully paid in the same names No. 2 account. 500 ordinary shares of 1 pound each fully paid in the same names No. 3 account. And 500 ordinary shares of 1 pound each fully paid in the same names, No. 4 account."
It is agreed that these shares were allotted to the person concerned in their capacity as trustees of each of the four settlements already referred to, which had been executed by Alex Russell and the trustees on 17 December 1960. The sum of 10,000 pounds representing the four amounts of 2500 pounds was paid by the deceased into the trust account of Messrs. Aitken, Walker and Strachan on 21 December 1960. On the next day that sum was transferred to the credit of the company in their trust account, in payment of the allotment moneys, including premium, in respect of the 2000 ordinary shares in the company which were allotted to the trustees of the settlement on 22 December 1960, as hereinbefore stated.
On 23 December 1960 an extraordinary general meeting of the company was held at which it was resolved "that the directors be authorized to convert the five ordinary shares in the capital of the company Nos1 to 5 which had been issued and are fully paid into preference shares, ranking equally in all respects with the existing issue preference shares in the capital of the company". It was in the belief that this resolution was valid and effectual that the executors, in their statement of assets for probate duty purposes, stated the testators shareholding in Wangata Ltd. to have been 20,005 1 pound eight per cent preference shares. It is common ground that the resolution was not, however, valid and effectual for this purpose.
On 29 December 1960 a cheque drawn on the trust account of Messrs. Aitken, Walker and Strachan for 10,005 pounds was credited to the bank account of the company, this sum representing the sum of 5 pounds paid by Alex Russell for the five subscribers shares plus the sum of 10,000 pounds in respect of the 2000 ordinary shares allotted to the trustees of the settlement on 22 December 1960.
On 30 December 1960 the company drew a cheque on its account in the Australia and New Zealand Bank Ltd. for the amount of 9882 pounds 10s. required in payment of the balance of the purchase money under the Wangata agreement. Payment of this cheque was made on 4 January 1961.
On 1 February 1961 Philip Russell applied to the company for and was allotted 20,000 ordinary shares of 1 pound each at a premium of 4 pounds each paid to one-third per share (being 3d. on account of capital and 1s. on account of premium per share). The application moneys for these shares were paid by Philip Russell by a cheque for 1250 pounds credited to the bank account at the company on 1 February 1961.
The deceased did not at any time deliver at the registered office of the company notice in writing of his desire to convert any of his preference shares into ordinary shares to the company nor did he otherwise seek to convert any of his preference shares into such ordinary shares.
At the date of the death of the deceased on 22 November 1961, the only issued shares in the capital were the five subscribers shares (held by the subscribers on trust for Alex Russell), the 20,000 preference shares allotted to Alex Russell, the 2000 ordinary shares allotted to the trustees of the four settlements and the 20,000 ordinary shares allotted to Philip Russell. (The five subscribers' shares were at that date believed to be preference shares but they were in fact ordinary shares).
It is further agreed between the parties that if as at the death of the deceased there was not attached to the 20,000 preference shares held by him any right of conversion into ordinary shares, then as at the death of the deceased the value of the five subscribers shares was 8 pounds 13s. each. This valuation is on an assets backing basis.
Furthermore, Mr. Fullagar, QC (for the Commissioner), formally admitted that the appellants are the executors of the will of Alex Russell deceased.
Each of the three directors of Wangata Ltd. gave oral evidence to the effect that at no time prior to 17 December 1960 did he contemplate issuing or agreeing to issue any further shares in the company other than the 20,000 preference shares issued to the testator and the 2000 shares issued to the trustees to the settlement. Mr. Philip Russell stated that he did not at the time of the Wangata sale contemplate applying for the 20,000 shares which in fact were issued to him on 1 February 1961. Mr. Macfarlan said that he would not have agreed to the issue of further ordinary shares at par without the approval of the deceased. Mr. Aitken said that he had no intention of agreeing to the issue of any further shares and he would have insisted on any further shares being issued at the same premium so as to avoid reducing or depleting the consideration which had been included in the Wangata sale agreement.
It is convenient at this stage to set out the terms of the reasons assigned by the Commissioner in his letter of the 4 June 1964:
"An additional amount of 80,000 pounds in connexion with the transaction and between the deceased and Wangata Ltd. has been included in the final balance. It is considered that the inclusion of this amount is required on the basis of one or other of the following considerations:--
- The deceased did not obtain any right to convert into ordinary shares the 20,000 preference shares issued to him and therefore, the transaction with Wangata Ltd.
- constituted or involved a gift inter vivos; or
- was void; or
- was voidable at the option of the deceased.
- The deceased obtained a right in the terms of CL5 of the memorandum of association to convert into ordinary shares the 20,000 preference shares and--
- this right to convert was part of the actual estate of the deceased; or
- paragraph (f) of s104(1) of the Administration of Probate Act 1958 applies; or
- paragraph (j) of s104(1) of the Administration of the Probate Act 1958 applies.
- There was inherent in the 20,000 preference shares issued to the deceased rights of conversion into ordinary shares such rights being exercisable by any holder of such preference shares."
The letter concludes:
"The information is furnished on the basis that the commissioner will not, and, indeed, cannot, be restricted at any later stage to the matters or considerations hereinbefore set out."
The notice of objection by the appellants against the assessment and the Commissioner's notice of disallowance of objection are too lengthy to be here set out. The course of the argument was directed mainly to an analysis of the reasons assigned by the Commissioner in his notice of disallowance of objection. Mr. Fullagar, QC (for the Commissioner), indicated that his main argument would be directed towards grounds 4, 5, 8 (b) and 8(c) of the Commissioner's notice of reasons for disallowance. These grounds related principally to the provisions of paragraphs (d)(i), (f) and (j) of s104 of the Administration and Probate Act 1958.
It is convenient to set out the relevant terms of s104(1).
- The following classes of property shall for the purposes of this Part be and be deemed to form part of the estate of the deceased person:--
- His real property in Victoria;
- His personal property wherever situate, if he was at the time of his death domiciled in Victoria;
- His personal property in Victoria, if he was not at the time of his death domiciled in Victoria;
- Any property the subject matter of any gift inter vivos by the deceased whether made before or after the commencement of this act, if such gift was made--
- within three years immediately before the death of the donor;...
- Any property over which the deceased had at the time of his death a general power enabling him by will or deed to dispose thereof (other than a power exercisable by him as trustee under a disposition not made by him);...
- Any property of which at the time of his death the deceased was competent to dispose, otherwise than in a purely fiduciary capacity;".
S100 of the Administration and Probate Act 1958 contains certain definitions which are here material, viz. those relating to "disposition", "gift inter vivos" and "property" but contains no definition of "general power of appointment". Such a definition has been included in s4(1) of the Probate Duty Act 1962 and s4(2) of the 1962 Act amplifies the interpretation of "disposition" contained in subs(1) of that section. Neither in the 1958 Act nor the 1962 Act is there any attempt to define the phrase "competent to dispose" occurring in s104(1)(j).
Grounds 4 and 8 (a) of the Commissioner's reasons for disallowance of the objection involve the assertion that the sale of the Wangata land by the deceased to Wangata Ltd. involved a gift inter vivos by the deceased to that company. This involves the proposition that the consideration received or receivable by the testator under the Wangata agreement was a "consideration in money or money's worth" which was "less than the value...of the property" (i.e. the Wangata land).
The parties are in agreement that the value of the Wangata land at the time of the Wangata agreement was 109,882 pounds 10s. The consideration receivable by the testator under the Wangata agreement was 9882 pounds 10s. in cash and 20,000 preference shares in Wangata Ltd. of 1 pound at a premium of 4 pounds per share in Wangata Ltd. The problem obviously is what was, as at 21 December 1960, the value of those preference shares. For the appellants it was said that at the date of the Wangata agreement the whole of the issued capital in the company (namely, five ordinary fully-paid shares of 1 pound each) were held on trust for the deceased so that with those shares and the 20,000 preference shares issued to him the deceased owned the whole of the issued capital and the value of that capital was the value of the assets owned by the company, less the liabilities of the company. Paragraph 21 of the agreed statement of facts sets out that at the date of the Wangata agreement the only assets of the company (other than its rights under the Wangata agreement) consisted of the allotment moneys in respect of the five subscriber shares, and its only liabilities (other than its liabilities under the Wangata agreement) consisted of the said subscribed capital.
On this basis it is argued by the appellants that at the time of the Wangata agreement, and immediately after its execution, the five ordinary shares in the company together with the 20,000 preference shares receivable by the testator under the agreement had an asset backing of 109,882 pounds 10s.
Under CL5 of the memorandum of association of Wangata Ltd. the preference shares confer on the holder a right to a fixed dividend of eight per cent p.a. on the paid-up capital and to a return of capital but not to any further participation in profits or assets. So long as the preference shares remain preference shares they could only be regarded as being of the value of the 1 pound per share, but if the deceased died without having exercised the right of converting those shares into ordinary shares, the assets of the company would then becomes divisible among the holders of the ordinary shares. If at that time the only issued ordinary shares were the five subscriber shares, the holders of those five shares would be entitled to the value of the company's assets less 20,000 pounds, and for practical purposes each ordinary share would be worth 20,000 pounds. It could not, however, be assumed that further shares would not be issued--under art. 29 of Table A the power of issuing new shares was vested in and exercisable by the directors. The possibility of the exercise of this power was obviously a matter to be taken into account on 17 December 1960 in determining what value should be placed on the ordinary and preference shares respectively. This possibility was realized on 22 December 1960 when the directors allotted 2000 ordinary shares of 1 pound each fully paid for cash at the premium of 4 pounds a share of Messrs. Philip Russell Macfarlan and Aitken as trustees of the four deeds of settlement. The allottees thereupon became bound to hold those shares on trust for the beneficiaries under the respective deeds of settlement. There is some evidence (from Russell) that the issue of these shares was under discussion and in contemplation at the date of the formation of the company. But what was not in contemplation at that time was the fact that Philip Russell would apply for and be allotted 20,000 ordinary shares of a 1 pound each at a premium of 4 pounds. At the time of the Wangata agreement the articles of the company were those contained in Table A of the Fourth Schedule to the Companies Act 1958. Article 53 provided that
"Subject to any rights or restrictions for the time being attached to any class or classes of shares, at meetings of members or classes of members each member entitled to vote may vote in person or by proxy or by attorney and on a show of hands every person present who is a member or a representative of a member shall have one vote, and on a poll every member present in person or by proxy or by attorney or other duly authorised representative shall have one vote for each share he holds".
New articles were adopted by the company on 22 December 1960, but it is agreed that they were not registered until 13 January 1961.
By virtue of s25(2) and s28(1) of the Companies Act 1958 the new articles did not become the operative articles of the company until registration. Consequently the effect of the issue of the 2000 ordinary shares is determined by the provisions of art. 53 of Table A (already referred to).
It follows that upon the allotment (on 22 December 1960) of the 2000 ordinary shares to the trustees of the deeds of settlement, control of the voting power of the company passed from the testator to those trustees.
Mr. Newton, for the appellants, contended that grounds 4, 5, 8(a), 8(b) and 9 of the Commissioner's reasons for disallowance could not be sustained having regard to the decision of Hudson, J, in Lennon v Comptroller of Stamps,  VR 73, and to the decision of Fullagar, J, and the Full High Court in Federal Commissioner of Taxation v Becker (1951) 87 CLR 456;  ALR 1018.
Mr. Fullagar formally submitted that the decision in Lennon v Comptroller of Stamps, supra, was wrong and that I should not follow it, alternatively, that it was distinguishable and that I should not apply it. He did not develop these submissions at any length, intimating that he desired formally to argue, on appeal if necessary, that Lennon's Case was wrongly decided. If I may say so, the decision of Hudson, J, appears to be plainly correct. Paragraphs (a) and (b) of Heading IV (A) of the Third Schedule to the Stamps Act 1958 are not expressed in terms identical with those used in the definition of "gift inter vivos" in s100 of the Administration and Probate Act but there does not appear to me to be any significant difference in the working of the two sets of provisions and I see no reason why I should not apply the reasoning and conclusion in Lennon's Case to the present facts. It follows that I reject the submission that the Wangata agreement by the testator to the Wangata Ltd. involved a gift inter vivos by the testator to the company and cannot uphold grounds 4 and 5 of the Commissioner's notice of disallowance.
It becomes necessary now to consider Mr. Fullagar's contentions that the inclusion, for probate duty purposes, of the amount of 80,000 pounds was required by the provisions of paragraph (f) or, alternatively, of paragraph (j) of s104(1) of the Administration and Probate Act 1958.
Basic to this submission was the contention that the phrase "at the time of his death" which occurs in each of the paragraphs was to be read as meaning immediately prior to this death and not (as Mr. Newton had contended) immediately after his death.
Mr. Fullagar's contention in this respect was, I think, fairly summarized in written submissions in reply handed in by Mr. Newton:
"The Commissioner's contention is that paragraph (f) or paragraph (j) of s104(1) caught 'property' which consisted of all rights of a holder of 20,000 ordinary shares in Wangata Limited, i.e. all the rights which would have attached to the testator's 20,000 preference shares if before his death he had delivered at the registered office of Wangata Ltd., pursuant to CL5 of the memorandum of association, notice in writing ('the Alex Russell notice') of his desire to convert the whole of his 20,000 preference shares into ordinary shares."
It was common ground between the parties that property which fell within paragraphs (a), (b) and (c) of s104(1), i.e. "actual estate", could not be taxed again under paragraph (f) or paragraph (j): see Cowley v Inland Revenue Commissioners,  AC 198; [1895-9] All ER Rep 1181; Perpetual Executors and Trustees v Federal Commissioner of Taxation (Thomas's Case),  AC 114, at pp. 129-30;  1 All ER 339, and Thomas' Case (No 2) (1955) 94 CLR 1, at pp. 12, 13;  ALR 1. Consequently, if the preference shares were taxable under paragraph (b) as actual estate, they could not be taxed again as notional estate under paragraph (f) or paragraph (j). Mr. Fullagar, however, contended that no such duplication was involved: the essence of his argument was that there could be separated out from the preference shares the rights of a holder of ordinary shares and the notional estate the subjects of paragraphs (f) and (j) consisted of the rights of an ordinary shareholder locked up in the preference shares.
He argued that at the time of the Wangata agreement there passed to the testator, with each of the 20,000 preference shares (of a face value of 1 pound each) which were then allotted to him, a valuable right, exercisable upon the giving of an "Alex Russell notice", and of a value of approximately 4 pounds per share in addition to the 1 pound face value. That right attached to the preference share itself and was a part of the share: it was not a mere personal right but a right conferred on the testator in his capacity as a shareholder. That valuable right was the sum of all the rights of an ordinary shareholder and it existed as from the date of the allotment of the preference share to the testator.
The content of the rights conferred on the testator by the issue to him of preference shares was to be measured (said Mr. Fullagar) by the rights defined in CL5 of the memorandum of association, namely:--
- A right to be paid out of the profits of each year a fixed dividend for such year at the rate of 8 pounds per cent per annum on the capital for the time being paid up thereof.
- A right to rank in a winding-up as regards return of capital in priority to the ordinary shares.
- A right to attend and vote at general meetings of the Company on any question directly affecting any other rights or privileges attaching to such preference shares. "More controversially" (to use Mr. Fullagar's own words), there were:--
- A right to attend and vote at general meetings of the company on all matters affecting any of the rights and privileges of shareholders of ordinary as well as preference shares, so long as that particular share was registered in the name of Alex Russell and so long as no notice under CL5 had been given by him. This right arose, Mr. Fullagar said, because matters affecting the rights of ordinary shareholders would be matters affecting the interests of Alex Russell even while he was a preference shareholder.
- A right to attend and vote at general meetings on all matters whatsoever after an "Alex Russell notice" had been given in respect of a share so long as that share remained on the register in his name.
- A right to share in the surplus assets of the company upon a winding-up if and when an "Alex Russell notice" had been given while the share was still in his name on the register of the company.
- All those rights, said Mr. Fullagar, were locked up in every preference share, even in preference shares issued to persons other than Alex Russell. For if any such preference shareholder transferred his preference share to Alex Russell, the latter would have the right to "convert" that share into an ordinary share.
- A further right, which inhered in every preference share, so long as Alex Russell was registered as the holder of that share, to deliver to the registered office of the company notice in writing of his desire to convert into ordinary shares the whole or any part of the preference shares in the company of which for the time being he should be the holder.
It followed, said Mr. Fullagar, that from the moment when the 20,000 preference shares were allotted to the testator, until the time of his death, testator was "competent to dispose of" all the rights of an ordinary shareholder locked up in each of those preference shares, even though no notice had been given. By giving such a notice there would become exercisable all the rights appertaining to an ordinary shareholder which theretofore had existed in potentiality only, and having made those rights exercisable, testator could then alienate them. Testator was in consequence "competent to dispose" of those rights.
Mr. Fullagar emphasized that the "property" the subject-matter of paragraphs (f) and (j) was not the capacity to make those rights exercisable but the very rights themselves. On the supposition that the testator had power to appoint to himself all the rights of an ordinary shareholder, it was not that power of appointment which fell within paragraph (f), but the rights of the ordinary shareholder which he would acquire by the exercise of that power. The "power to dispose" of property referred to in s104(1)(f) of the Administration and Probate Act 1958 was the power to get in the rights and then dispose of them as his own. This followed, he said, from the decisions in Re Penrose; Penrose v Penrose,  CH 793;  All ER Rep 796, and Re Parsons; Parsons v Attorney-General,  CH 12;  2 All ER 496.
Those rights, even if not "property" within the ordinary acceptation of that term, i.e. proprietary rights, were (he argued) within the definition of "property" in s100. By that definition "property" included real property, personal property, any estate in real or personal property, any interest in real or personal property, any debt, any chose in action, and any other right or interest. Each of the various rights bound up in a preference share or in an ordinary share was a chose in action or a right within the meaning of that definition and, consequently, was property. Each of those rights--that property--was always in existence: the argument that the rights of ordinary shareholders had never existed with respect to those preference shares alloted to the testator and, having regard to the fact that the testator never gave the "Alex Russell notice", would never exist was incorrect, as was also the argument that one could not separate out any of the rights from the rest of the rights conferred by a private holding of the share.
Whether the ordinary share rights were present in potentiality in ("locked-up in") each preference share from the moment of its issue until the death of the testator, (as Mr. Fullagar contended) or whether the preference shares conferred on the testator merely certain rights attaching to all preference shares plus the right, on giving the "Alex Russell notice", to exchange those rights for the very different rights attaching to ordinary shares, was much debated but does not, in the result, seem to me to call for decision. On the latter view the "ordinary share rights" would not have been vested in nor owned by the testator until he had actually given the "Alex Russell notice", and the testator had never given such a notice. The appellants' argument was that the right to give that notice ceased at testator's death, and consequently the ordinary share rights never formed part of his estate: all he had ever owned was the right to acquire ordinary share rights upon giving the "Alex Russell notice". That right ceased to exist at the moment of his death and, therefore, was not one of the rights attaching to the preference shares which formed part of his actual estate upon his death.
I am disposed to think that, from the moment of the issue to testator of the preference shares, there was vested in him, contingently upon the giving of an "Alex Russell notice", the power to alter the character of the rights attaching to his preference shares. This may perhaps be regarded as a case of contingent ownership (cf. Salmond on Jurisprudence, 10th ed., p. 281). But whether this is so or not, the decisive questions are:--
- Whether that power may be separated from the shares the subject of that power, and
- Whether that power inhered in those shares at the point of time when the composition and value of his estate for probate duty fell to be determined.
- Whether those shares, or the "ordinary share rights" locked up in those shares, were property over which testator had a general power enabling him by will or deed to dispose thereof (s104(1)(f)) or was property of which at the time of his death he was competent to dispose (s104(1)(f)).
These questions involve consideration of the nature of the interest or right conferred by the holding of a share.
In Borland's Trustee v Steel,  1 CH 279, at p. 288, Farwell, J, said:
"A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with s16 of the Companies Act 1862"
(see s28 of the Companies Act 1958, now s33(1) of the Companies Act 1961).
In Attorney-General v Jameson,  2 IR 644; on appeal,  2 IR 218, the question involved was the same as that subsequently decided by the House of Lords in Inland Revenue Commissioners v Crossman,  AC 26;  1 All ER 762, namely, how to apply the provisions of s7(5) of the Finance Act 1894 (whereby the value of any property was required to be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased) to shares in a company the Articles of Association of which contained an elaborate series of provisions restricting the transferability of such shares. It was held by the Irish Court of Appeal that the principal value of the shares ought to be estimated at the price which, in the opinion of the Commissioners of Inland Revenue, the shares would fetch if sold in the open market on the terms that the purchaser should be entitled to be and should be registered as the holder of the shares, and that he should take and hold them subject to the articles of association, including the articles relating to the alienation of transfer of shares of the company. In this respect they varied the order of the King's Bench Divisional Court.
In Inland Revenue Commissioners v Crossman,  AC 26, at p. 38;  1 All ER 762, at p. 767, Viscount Hailsham, LC, described the points of conflict in Attorney-General v Jameson, supra, as follows:
"Palles, CB, took the view that the restrictions upon the right to transfer contained in the articles should be disregarded altogether in assessing the value of the shares and that they were to be valued on the basis that these restrictions were merely collateral and that the shares were to be treated as freely transferable. This view was not accepted by the other two judges (Kenny and Boyd, JJ), who held that the shares must be valued on the basis that any purchaser in the open market would take subject to the risk of the shares being claimed by existing shareholders at the price fixed by the articles. ...The (I) Court of Appeal rejected both the views which had found acceptance in the Court below, and they declared that the value of the shares was to be estimated at the price which they would fetch if sold in the open market on the terms that the purchaser would be entitled to be registered as the holder of the shares and would take and hold them subject to the provisions of the Articles of Association, including the articles relating to alienation of transfer."
Lord Blanesburgh in Crossman's Case,  AC 26, at p. 53, described the views of Palles, CB ( 2 IR 644, at pp. 688-9), in these terms: that while the whole legal and beneficial interest in each of the shares passed on the death of the deceased, it so passed in what may be called two parts--
- The share subject to the right of pre-emption--"property" within s1 of the [Finance] Act; and
- The right of pre-emption itself--"property" that is under s2(b), in which the deceased had an interest ceasing on his death "in respect of which a benefit accrued or arose by the cesser of such interest", and which was therefore "deemed to pass under that sub-section".
In the Court of Appeal in Ireland, in Attorney-General v Jameson,  2 IR 218, at p. 228, FitzGibbon, LJ, rejected the views thus put forward by Palles, CB FitzGibbon, LJ, said (at p. 228) that each of the 750 shares there in question "with all rights and liabilities, and all advantages and disadvantages, incident to its ownership, passed on Henry Jameson's death to his executors as one indivisible piece of property". In conveyancing phraseology, the executors took each share "to hold in as full and ample a manner as the same was held" by Henry Jameson at his death. Later (at p. 230) FitzGibbon, LJ, added:
"The basis of my construction of the Act is the unity and indivisibility of Henry Jameson's property in the shares. I cannot adopt any procedure, or accept any solution of the question in dispute, which splits up that interest for any purpose."
Lord Ashbourne, LC, at pp. 225-6, and Holmes, LJ, at p. 238, expressed views substantially in agreement with those thus expressed by FitzGibbon, LJ. Moreover, the latter's views received complete endorsement by the members of the House of Lords, including the dissenting Law Lords, in Inland Revenue Commissioners v Crossman, supra, where the same question as that involved in Jameson's Case fell for decision.
In Inland Revenue Commissioners v Crossman,  AC 26, at p. 41;  1 All ER 762. Viscount Hailsham, LC, rejected the notion that in valuing a share it was proper to select some only of the rights conferred by the ownership and place a value on those rights disregarding the rights of pre-emption conferred on other shareholders by the articles.
At ( AC) p. 51, Lord Blanesburgh said that
"It was the deceased's entire legal and equitable interest in his ordinary shares which...passed; each share a separate entity--a 'property' within the meaning of the Act charged with duty as it passed 'in the ordinary sense of the term from the deceased into the possession and property of another person after his death', see per Lord Watson in Attorney- General v Beech,  AC 53, at p. 58. The property which so passed was an entire 'indivisible piece of property' as FitzGibbon, LJ, described it to be in Jameson's Case,  2 IR 218, at p. 228."
Later, at ( AC) pp. 53-4, Lord Blanesburgh stated, and emphatically rejected, the view propounded by Palles, CB, that while the legal and beneficial interest in the shares had passed on the death of the deceased, it had so passed in two parts:
- the share subject to the right of pre-emption--actual estate, and
- the right of pre-emption itself--notional estate.
Lord Roche, at ( AC) p. 71, expressed general concurrence with the reasons expressed by Viscount Hailsham, LC, Lord Russell of Killowen, dissenting, said, at ( AC) p. 66; ( 1 All ER) p. 787:
"A share in a limited company is a property the nature of which has been accurately expounded by Farwell, J, in Borland's Trustee v Steel,  1 CH 279. It is the interest of a person in the company, that interest being composed of rights and obligations which are defined by the Companies Act and by the memorandum and articles of association of the company. A sale of a share is a sale of the interest so defined."
At ( AC) pp. 69-70; ( 1 All ER) pp. 789-90, Lord Macmillan said:
"A share in a joint stock company is an entirely conventional creation; the congeries of rights of which it consists is the creature of the Companies Act and the memorandum and Articles of the particular company. Within the law the rights and liabilities appurtenant to a share may vary widely. But it cannot exist independently of the inherent attributes with which it has been created. When therefore the Legislature directs that these shares are to be conceived as being exposed for sale in the open market, in order to see what price they would fetch I must conceive them as being offered to purchasers with all their attributes. If they are subject to conditions which restrict either the rights of enjoyment or the rights of alienation of the holder, then the sale must be of the shares as so restricted. The Finance Act confers no power to strip the shares of any of their inherent attributes. The sale, no doubt, is a hypothetical sale, but the hypothesis is that the thing itself is being sold as it stands with all its qualities and all its disabilities."
Although Lords Russell and Macmillan were dissentients, it is plain that the general principles enunciated in the passages cited are in accordance with those expressed in the majority opinions.
It follows that while it is correct to speak of the testator's preference shares as consisting of a bundle or congeries of rights, it is not correct to speak of the shareholder owning each of those rights as a separate piece of property, or as a separate chose in action. The true position is, as Williams, J, observed in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (1948) 77 CLR 143, at p. 157;  2 ALR 489, at p. 494, that those rights "are ingredients in the chose in action which each original shareholder purchased from the Company".
It is not permissible, therefore, to separate out the various rights appertaining to the holder of preference shares and to treat some of those rights as "actual estate" and others as "notional estate". "The property in shares is the property that exists in the shares themselves": per Williams, J, in Robertson v Federal Commissioner of Taxation (1952) 86 CLR 463, at p. 480;  ALR 1, at p. 8. Indeed the actual decision in that case represents a rejection of the Commissioner's contention (86 CLR at pp. 470-1) that the rights which had attached to Sir Macpherson Robertson's shares up to the time of his death but did not attach thereafter (see art. 6 (ii)(d)) were separate property: see per Williams, J, at (CLR) pp. 478-80, and per Taylor, J, at p. 493.
Let it be assumed that the testator's ownership of the preference shares conferred on him, from the moment of the issue of those shares to him, the rights which a holder of ordinary shares would have (i.e. the ordinary share rights), and that those "ordinary share rights" ("locked up", to use Mr. Fullagar's phrase, in each preference share) constituted "property" within the meaning of the definition of that term in s100 of the Administration and Probate Act 1958 or constituted a "chose in action" or "other interest" in "personal property" within the meaning of the same definition. It does not follow that those ordinary share rights or that "chose in action", or that "other interest" in personal property, had a separate existence from the preference share in which they inhered. In my view, they had no such separate existence and did not constitute a separate "property" forming part of the notional estate of the testator. On the contrary, whatever rights were, at the death of the testator "locked up" in the preference shares owned by him were part of those shares, and those shares formed part of his actual estate. There could not, at the same time, be separated out of the actual estate constituted by those shares, certain rights (of conversion of those shares into ordinary shares) so as to become dutiable separately as part of his notional estate.
The second and third questions posed above (at p. 297) cover, to some extent, the same ground. The power conferred on Alex Russell by CL5 of the memorandum was a power entitling him "during his lifetime" to deliver notice in writing of his desire to convert preference shares into ordinary shares.
It was exercisable by him up to the moment of his death but did not survive his death and was not exercisable by his legal personal representatives. The property the subject of that power in his lifetime consisted of the preference shares registered in his name. Were those shares property over which the testator had at the time of his death a general power enabling him by will or deed to dispose thereof (s104(1)(f)) or property of which at the time of his death he was competent to dispose (s104(1)(f))?
The whole of PtV of the Administration and Probate Act is concerned with the levying and collection of duty upon the estate "of a deceased person": see s103, s104, s105, s106(c), s107, s108, s111, s114, s116, s117, s121, s122. Speaking of the Estate Duty Assessment Act, Kitto, J, said in Robertson v Federal Commissioner of Taxation, supra, at (86 CLR) p. 486:
"It is not until there is an estate of a deceased person that the Act speaks."
Those remarks are equally applicable to PtV of the Administration and Probate Act and to the Probate Duties Act 1962.
Nevertheless, for many purposes, the Administration and Probate Act 1958 looks to "the time of death"--e.g. for the purposes of determining domicile under s104(1)(a) and s10(1)(b) and s105(1). Paragraphs (d), (f), (i), (j) of s104(1) also speak in terms of "the time of his death". In at least one case, the Act takes account of debts incurred subsequent to the date of the death of the deceased--see s105(2)(a).
In s104(1)(e) the Act looks to a time "immediately prior to his death" so as to catch the beneficial interest of the deceased as a joint tenant. That interest ceases, of course, at the time of his death. In s104(1)(i) is a special provision to make dutiable "the beneficial interest in any property ceasing on the death of the deceased to the extent to which a benefit accrues or arises for any other person by the cesser of such interest". Having regard to the express reference in paragraph (e) to a point of time "immediately prior to his death". I am unable to accept Mr. Fullagar's contention that the phrase "at the time of his death" in paragraphs (f) and (j) is to be construed as referring to the instant of time immediately preceding the death of the deceased. It is clear that up to the very moment of his death the testator retained and could have exercised the power conferred on him by CL5 of the memorandum of delivering a notice in writing of his desire to convert all or any of his preference shares into ordinary shares. (I am disposed to think that the effective exercise of the power required the delivery of that notice at the registered office of the company during his lifetime.) It could not, however, be exercised by will. The testator not having exercised that power during his lifetime, it ceased, upon his death, to exist or to be exercisable.
If a power vested in the donee permits its exercise by will, it may be said that the donee had (as s104(1)(f) expressly says), at the time of his death a power enabling him by will to dispose the property the subject of the power: Webb v McCracken (1906) 3 CLR 1018. But it does not follow that property the subject of a power of disposition exercisable during testator's lifetime, but not exercisable by will, can be regarded as property over which testator had "at the time of his death" a general power enabling him to dispose thereof or as property of which he was at that time competent to dispose.
In my view, property over which the deceased had during his lifetime a general power enabling him to dispose thereof but which ceased at the moment of his death to be subject to that power (because the power ceased at that instant to be exercisable) is not within paragraph (f): see Re Taylor (1950) 51 SR (NSW) 16, at p. 21, per Street, CJ. Furthermore, I think that it is not property of which the deceased was at the time of his death competent to dispose within the meaning of s104(1)(j). To adapt the language of Kitto, J, in Robertson v Federal Commissioner of Taxation (1952) 86 CLR 463, at p. 486, those paragraphs must be construed "on the hypothesis that the deceased has died", and the power of disposition does not, on that footing, exist at the time of his death.
I observe that in the provisions of the Probate Duty Act 1962 (Act No. 6890) corresponding to paragraphs (i) and (j) of s104(1)--namely, paragraphs (i) and (j) of s7(1)--the phrase "immediately prior to his death" replaces the phrase "at the time of his death". But in paragraph (f) of s7(1) the phrase "at the time of his death" has still been retained. Whether the change is attributable to a desire to relax the law or merely to a desire to make explicit what had theretofore been considered to be explicit, I do not know: at all events, it is not a matter on which I have placed any reliance in arriving at the conclusions expressed above.
If I were wrong in those conclusions, it would be necessary to consider whether the testator's power to convert the preference shares into ordinary shares could be regarded as being "a general power enabling him by will or deed to dispose thereof" or as making the testator "competent to dispose" of the shares. The provisions of s104(1)(f) were first enacted in Victoria in 1903 as s13 of the Administration and Probate Act 1903 (Act No. 1815). Prior to that enactment, there had been several decisions of the Victorian courts, the general tenor of which was that property the subject of a power of appointment did not form part of the donee's estate. Thus where the deceased had a general power exercisable only by will, and had by her will exercised that power, it was held that the property so appointed did not form part of deceased estate: Re Patterson (1885) 11 VLR 768; 7 ALT 137. Furthermore where the deceased had a special power of appointment, exercisable by deed or will over real and personal property, and the deceased exercised that power by will so as to make the property available for payment of her debts and legacies, the realty and personalty the subject of the exercise of that special power was held not to be "real estate comprised in such will" nor "personal estate of or to which the deceased was at her death possessed or entitled" within the meaning of s97(ii) of the Administration and Probate Act 1890: Re Brodie (1900) 26 VLR 562; 6 ALR 255.
On the other hand, the Full Court had held in Re Wilson (1903) 24 ALT 168; 9 ALR 36, that where the deceased had a general power of appointment, exercisable by deed or will, and the deceased had by her will exercised the power so as to appoint portion of the property to her executors, the property so appointed fell within s97(ii) of the Administration and Probate Act 1890-- presumably as personal estate of or to which she was at her death possessed or entitled. But in Webb v McCracken (1906) 3 CLR 1018, at p. 1026; 12 ALR 313, at p. 315, Griffith, CJ, doubted whether the decision in Re Wilson could be supported having regard to the decision of the Privy Council in Commissioner for Stamp Duties (NSW.) v Stephen,  AC 137, that property over which the deceased had a special power of appointment by will only was not dutiable either as being part of the estate of the deceased or as being property over which the deceased had a general power of appointment.
Under s13 of the Administration and Probate Act 1903 (Act No. 1815) property over which the deceased had at the time of his death a general power enabling him by will or deed to dispose thereof was upon his death deemed to form part of his estate. In Re McCracken,  VLR 356; 12 ALR 303, the Full Court held that property over the deceased had, at the time of her death a general power of appointment exercisable by will only (and in fact exercised by her will) was not within s13, but on appeal (sub nom. Webb v McCracken (1906) 3 CLR 1018; 12 ALR 313), the High Court reversed the decision, holding that the section applied to a general power exercisable by deed or will, a general power exercisable only by deed and a general power exercisable only by will.
Neither in the 1903 Act nor the 1958 Act is there any definition of "general power" such as the definition of "general power of appointment" contained in s4(1) of the Probate Duty Act 1962 or in s22(2)(a) of the Finance Act 1894 (Eng.). In Webb v McCracken, supra, at (3 CLR) p. 1023; (12 ALR) p. 314, Griffith, CJ, pointed out that the expression "general power" is a term of art. The term imports a power over property not belonging to the donee, a power to bestow an estate either greater than or independently of any estate which the donee may himself happen to have in the subject property; and the title of the appointee to the estate so appointed derives ultimately from the instrument conferring the power and from the estate of the person creating the power. See O'Grady v Wilmot,  2 AC 231, at pp. 248, 260, 262-3, 272, and Re Dobson,  VLR 83, at pp. 96-7;  ALR 138, at pp. 145-6, per O'Bryan, J. See also Commissioner of Stamp Duties v Pratt,  NZLR 163, at p. 172, and Re Going,  NZLR 144, at pp. 164-9 and 171. It appears to me, therefore, that the right conferred on the testator by CL5 of the memorandum of Wangata Ltd. to convert his preference shares into ordinary shares cannot be regarded as a "general power enabling him by will or deed to dispose thereof", and that therefore, the "ordinary share rights" (assuming for the moment, that they could be separated out of the preference shares and treated as separately existing property) cannot be regarded as property over which the deceased had a general power so as to be dutiable under paragraph (f). That leaves the question whether (assuming that the ordinary share rights locked up in testator's shares, constituted "property" separate and distinct from the shares themselves) those share rights were "property of which the deceased was at the time of his death competent to dispose" within the meaning of s104(1)(j)?
I have already indicated that the assumption predicated above is not one I am disposed to make and that, in my view, the ordinary share rights cannot be separated out of, and given an existence independently of, the preference shares. I have further indicated that paragraph (j) cannot apply to rights which the testator could call into existence only during his lifetime and which ceased to have even the possibility of existence at the time of his death. There is no decision applying paragraph (j) to rights on property of which the deceased became, upon his death, incompetent to dispose.
On the contrary, the decision of the Full Court in Re Taylor (1950) 51 SR (NSW) 16, seems to me to be inconsistent with the conclusion here contended for by the Commissioner.
In that case the testator's father, who had died in 1946, had by his will bequeathed certain shares in a private company with restrictions on transfer of shares, upon trust to sell and transfer the shares to his son Roy Gladstone Taylor (the testator) at or for the price of 1 pound per share at any time within three years from the date of his death on being required so to do by the said Roy Gladstone Taylor. Roy Gladstone Taylor died within the following year without having rejected or exercised the option. The Commissioner of Stamp Duties thereupon sought to assess the estate of the testator (Roy Gladstone Taylor) with stamp duty in respect of the option to purchase the shares on the basis that this was "property over or in respect of which the deceased had at the time of his death a general power of appointment". "A general power of appointment" was defined (by s100 of the Act) as including "Any power or authority which enables the donee or any holder thereof ...to appoint or dispose of any property...as he thinks fit for his own benefit, whether exercisable by instrument inter vivos or by will or otherwise".
All members of the Court held that the option was personal to the testator and not transmissible by him.
Street, CJ, said, at p. 22: "R G Taylor could not have dealt with the shares by will and could have made no effective bequest of them, and s102(2)(j) [of the NSW Stamp Duties Act] obviously refers to property over which the deceased had some powers of disposal as owner. All that R G Taylor owned was an option which died with him, giving him no right under those circumstances to interfere with the devolution of the shares in question under the will of J S Taylor."
Mr. Fullagar, however, relied strongly on two English decisions namely, Re Penrose; Penrose v Penrose,  CH 793;  All ER Rep 796, and Re Parsons; Parsons v Attorney-General,  CH 12;  2 All ER 496, (both involving the application of the phrase "competent to dispose of" occurring in s5(2) of the Finance Act 1894. For the proper understanding of those decisions, the relevant provisions of that Act must be looked at.
The Finance Act 1894 (57 and 58 Vict. c. 30), like the Probate Duties Act 1962 and s104 of the Administration of Probate Act 1958, imposes on estate duty on the property which passes on the death of a person (actual property) and on certain property which, by s2, is "deemed to pass", i.e. the notional estate. S2(1)(a) of the Finance Act 1894 is therefore concerned with "notional estate" of the deceased. It provides as follows:--
- Property passing on the death of the deceased shall be deemed to include the property following, that is to say--
- Property of which the deceased was at the time of his death competent to dispose."
The phrase "competent to dispose" occurs again in s5(2) of the Finance Act which provides that "if Estate duty has already been paid in respect of any settled property since the date of the settlement, the Estate duty shall not, nor shall any of the duties mentioned in the fifth paragraph of the First Schedule to this Act, be payable in respect thereof, until the death of a person who was at the time of his death or had been at any time during the continuance of the settlement competent to dispose of such property...".
There is in the Finance Act 1894, but not in the Victorian Act, a definition of the phrase "competent to dispose". By s22(2)(a) "a person shall be deemed competent to dispose of property if he has such an estate or interest therein or such general power as would, if he was sui juris, enable him to dispose of the property, including a tenant in tail, whether in possession or not; and the expression 'general power' includes every power or authority enabling the donee or other holder thereof to appoint or dispose of property as he thinks fit, whether exercisable by instrument inter vivos or by will, or both, but exclusive of any power exercisable in a fiduciary capacity under a disposition not made by himself, or exercisable as tenant for life under the Settled Land Act 1882, or as mortgagee".
The operation of these provisions is illustrated by the two cases already referred to. In Re Parsons; Parsons v Attorney-General,  CH 12;  2 All ER 496, a testatrix bequeathed a legacy of 10,000 pounds to her husband absolutely, directed her trustees to pay the income of her residuary estate to her husband for life and after his death to hold the residuary trust fund for her son absolutely. She died on 20 June 1937 and the estate duty then payable (including that attributable to the 10,000 pounds) was paid. Her husband formally disclaimed the legacy by a deed of disclaimer dated 24 February 1938. The effect of this was that the sum of 10,000 pounds fell into residue: the income thereof was payable to the husband for his life and on his death it passed to his son. He died on 31 August 1940. Estate duty was then claimed in respect of the 10,000 pounds on the grounds that notwithstanding his disclaimer of the legacy, the husband was "during the continuance of the settlement competent to dispose of" the 10,000 pounds within the meaning of s5(2) of the Finance Act 1894. It was contended on behalf of the trustees of the will that the effect of the disclaimer of the legacy was to make the gift void ab initio. This contention was rejected by the Court of Appeal, which, while recognizing that from the date of the disclaimer the husband ceased to be competent to dispose of the legacy was unanimous in holding that between the date of the death of the wife and the date of the disclaimer the husband ceased to be "competent to dispose of" the legacy. Lord Greene, M R, said, at p. 15, that "The phrase 'competent to dispose' is not a phrase of art, and taken by itself and quite apart from the definition clause in the act, it conveys...the ability to dispose including, of course, the ability to make a thing your own".
In Re Taylor (1950) 51 SR (NSW) 16, at p. 24, Owen, J, distinguished the case of Re Parsons, supra, on the ground that in that case the legatee was not required to do any act to make the legacy his own. It was his own unless he took some positive action to rid himself of it. The same distinction might be taken also with respect to the present case: Alex Russell had to take positive action (by serving the "Alex Russell notice") before his shares became ordinary shares.
The second of the two cases--and the one on which Mr. Fullagar placed very great reliance--was Re Penrose; Penrose v Penrose,  CH 793;  All ER Rep 796. In that case the testatrix bequeathed her residuary estate to her trustees on trust to pay the income to her husband for life and after his death upon trust for such of the following persons as her husband should by deed or will appoint, namely,
- any issue (immediate or remote) of her late father, subject only to the rule against the creation of perpetuities,
- any issue (immediate or remote) of her husband's late father, subject to the same rule, and
- any charitable purposes falling within the legal conception of charity.
She further provided that in default of the exercise of the power and subject to any partial exercise thereof, her residuary estate should be held in trust for four named sons. After her death her husband, by deed poll, purported to appoint a certain sum of the testratrix's residuary estate to himself. Estate duty had been paid on the residuary estate of the testatrix upon her death, but upon her husband's death the Commissioners for Inland Revenue claimed estate duty was payable again in respect of the testatrix's residuary estate, on the ground that under the power of appointment conferred on him by the will of the testatrix he was "competent to dispose" of that estate within the meaning of s5(2) of the Finance Act 1894. Luxmoore, J, rejected contentions that the husband was not an object of the power and that the power was a special power under which the donee could not appoint to himself. He rejected a further argument that if the donee appointed to himself he only acquired the property but did not dispose of it and that a power to dispose of the property as he thinks fit did not arise under the power but only after he had exercised it in his own favour. He said, at (Ch.) pp. 807-8; (All ER) pp. 801-2:
"In my judgment this is too narrow a construction to place on the words of the definition. A donee of a power who can freely appoint the whole of the fund to himself and so acquire the right to dispose of the fund in accordance with his own volition, is, in my judgment, competent to dispose of that fund as he thinks fit, and it can make no difference that this can only be done by two steps instead of by one--namely, by appointment to himself, followed by a subsequent gift or disposition, instead of by direct appointment to the object or objects of his bounty. If under a power the donee can make the whole of the property subject to it his own, he can by exercising the power in his own favour place himself in the position to dispose of it as he thinks fit. The power to dispose is a necessary incident of the power to acquire the property in question. In my judgment, the word 'power' in the phrase 'a power to appoint or dispose of as he thinks fit', is not used in the definition section in the strict legal sense attaching to it when used with reference to a power of appointment, but in the sense of capacity; and I think this is made clear by the use of the words 'or dispose of' in addition to the words 'to appoint' because otherwise the words 'or dispose of' would be mere surplusage".
Relying on that decision, Mr. Fullagar argued that under the provisions of CL5 of the memorandum, the testator had the capacity to convert his preference shares into ordinary shares, and that he would, upon so converting them, have been able to alienate them from himself. The testator was, therefore, "competent to dispose of" the ordinary shares. It did not matter, Mr. Fullagar said, that the testator had not in fact converted them and that he died without ever exercising the right to convert the preference shares into ordinary shares; he was at all stages from 17 December 1960 until his death "competent to dispose of" ordinary shares in the Company.
It is to be observed that in reaching this decision referred to above, Luxmoore, J, relied on the definition in s22(2)(a) of the Finance Act. The power was not a general power of appointment: it was a special power of appointment. It could not be held that the actual power fell expressly with the definition clause, for the terms of that power did not enable that the husband (the donee) to "appoint...of property" as he thought fit, he being empowered to appoint it only among a limited class of persons. Accordingly the argument was advanced that the donee could appoint to himself and thereby acquire the power to dispose of the property as he thought fit. The gist of decision was that the donee could, by exercising the power in his own favour, place himself in a position to dispose of the property as he thought fit and could, therefore, be regarded as "competent to dispose of" that property.
In so far as that result was arrived at by Luxmoore, J, on a reading of the definition clause in s22(2)(a) it would not necessarily be applicable to this Act where no such definition of the words "competent to dispose of" appears.
In Re Taylor (1950) 51 SR (NSW) 16, Owen, J, pointed out, at p. 25, that in considering the passage in the judgment of Luxmoore, J,  Ch, at p. 807;  All ER, at p. 801, already referred to, "it is necessary to emphasise the words 'as he thinks fit'. The deceased there admittedly had power to dispose of property the subject of the power. The only question was whether he could do so as he thought fit in view of the fact that he could dispose of it only among a limited class of persons including himself. It was to this problem the learned judge was addressing his mind, and I do not regard the passage quoted as affording any support for the proposition put to us in the present case".
Re Penrose, supra, has, moreover, not escaped criticism--notably in the Court of Session in Scotland in the case of Tawse's Trustees v Lord Advocate  SC 124. In that case, the testator had transferred to trustees 7150 ordinary shares of 1 pound each fully paid of William Tawse Ltd., a private company of which he was chairman. The transfer was qualified by the proviso that "the trustee shall be bound from time to time when called on by me, the said William Tawse, to reconvey to me and at my expense some or all of the said 7150 shares of William Tawse Limited in exchange for other stocks and shares on the following basis, namely, ...the stocks and shares so tendered in exchange must be equal in capital value to the par value of the shares of William Tawse Limited so withdrawn from the trust".
The testator died without ever having made application for a reconveyance of the shares. On his death the Commissioners of Inland Revenue made an assessment for an estate duty on the "property consisting of the right or option reserved by the said deceased William Tawse" to have the said shares reconveyed to him at their par value. The Court of Session discharged the assessment.
All members of the Court expressed reservations as to the correctness of the decision of Luxmoore, J, in Re Penrose, supra, that where it is in the power of the person to make the property his own, he is competent to dispose of such property. Lord Jamieson said, at p. 144:
"It is unnecessary to comment on the far-reaching and somewhat startling consequences which might result if this were accepted as a general rule applicable in every case where a person has purposely for good and valid reasons refrained during his lifetime from exercising a right competent to him."
Similar comments fell from the Lord-Justice-Clerk (Lord Cooper), at p. 131, and Lord Wark, at p. 142. It was also pointed out that in Re Penrose the assessment had been made not on the right but on the property over which it might have been exercised: see per Lord-Justice-Clerk, at pp. 131-2; per Lord Wark, at p. 142, and per Lord Jamieson, at p. 144.
The New Zealand Court of Appeal has twice declined to overrule its earlier decision in Commissioner of Stamp Duties v Pratt,  NZLR 163, in order to follow the decisions in Re Penrose and Re Parsons: see Re Going,  NZLR 144, and Re Manson,  NZLR 257. In the latter case the Court considered that it ought to follow Pratt's Case notwithstanding that the latter was in substantial conflict with the two English cases.
Pratt's Case,  NZLR 163, was a decision as to the meaning of the phrase "power of appointment" in s5(1)(h) of the Death Duties Act 1921-- a paragraph in substantially similar terms to s104(1)(f) of the Administration and Probate Act 1958. (The definition of "general power of appointment" in s2 of the New Zealand Act is substantially similar to that in s4(1) of our Probate Duty Act 1962.)
Re Going, supra, and Re Manson, supra, support the conclusion I have expressed as to the meaning of s104(1)(f) of the 1958 Act, but throw no light on s104(1)(j). I have not, therefore, in the result derived much assistance from the New Zealand decisions (to which Mr. Newton referred me).
Re Penrose, supra, was however, followed in the Supreme Court of Canada in a case which is closer in its facts to the present one than is Re Penrose.
In Re Penrose, supra, the power to appoint was one exercisable by will and, therefore, the observations of Luxmoore, J, were not directed to the point which arises in the present case. viz, whether property over which a person may exercise a power only during a person's lifetime can be regarded as property of which at the time of his death the deceased was competent to dispose. That point, however, was directly involved in, but does not appear to have been adverted to in, the Canadian case in which Re Penrose was followed by the Supreme Court of Canada: Montreal Trust Co v Minister of National Revenue,  4 DLR (2d) 449.
The Dominion Succession Duty Act (1940-41) of Canada imposes a succession duty in respect of succession. S3(4) of that Act provides that where a deceased person had at the time of death a general power to appoint or dispose of property, there shall be deemed to be a succession in respect of such property, s3(1)(i) provides that a succession shall be deemed to include "property of which the person dying was at the time of death competent to dispose". S4(1) contains a definition of "competent to dispose" which is not in terms distinguishable from that contained in s22(2)(a) of the Finance Act 1894.
In the Montreal Trust Co. Case, supra, the question arose under a will whereby the testator left the residue of his estate to his trustees to pay the net income to his wife during her lifetime and "to pay to my wife...the whole or such portion of the corpus thereof as she may from time to time and at any time during her life request or desire". Upon the death of the wife the residuary estate was to be divided equally between his children. The wife never made any request for nor expressed any desire to be paid any of the corpus, nor did she ever receive any portion of it. It was held nevertheless that the wife was "competent to dispose" of the residue of her husband's estate because she had power or authority enabling her to appoint or dispose of the property as she thought fit.
Kerwin, CJ (with whom Taschereau and Fauteux, JJ, concurred), held that the power or authority given to the widow to "request or desire" the whole or any part of the corpus to be paid to her was sufficient to bring her within the terms of the statute and held that the point was exactly covered by the decision in Re Penrose, supra. Rand, J, at pp. 453-4, after referring to the definition in s4(1) said:
"If the language were 'to appoint as he thinks fit' that would, no doubt, express the general understanding of such a power but the 'authority to dispose of property as he thinks fit' must obviously be given independent meaning and if it is then it necessarily effects an enlargement of the ordinary scope of the expression. 'Authority to dispose of' contemplates ultimate alienation. The technical conception of an appointment is that the property is deemed to be passed from the donor of the power to the appointee, but with authority to dispose there is added the case such as is before us where the donee can admittedly require the whole of the residue to be paid to her and thereupon dispose of it as she sees fit. That was the view of similar language taken by Luxmoore, J, in Re Penrose,  CH 793, and I think it is the right view."
Cartwright, J, at p. 454, was disposed to think that the power given to the widow was not, strictly speaking, a general power of appointment, but was for the reasons given by the Chief Justice in agreement that the widow must be deemed to have been competent to dispose of the fund.
None of the judges expressly discussed the question (not actually raised in Re Penrose) whether property of which the testator's widow was able to dispose during her lifetime could be property of which she was at the time of her death competent to dispose.
The actual decision assumes an affirmative answer to that question, and it may be that there are sufficient indications in the Canadian Act to justify that affirmative answer. I have already indicated that the terms of the Administration and Probate Act 1958 lead me to a different conclusion. I conclude then that s104(1)(f) is not applicable in the facts of the present case. The preference shares were dutiable--as part of the testator's actual estate--under s104(1)(b). There is no basis on which the "ordinary share rights" which inhered in those shares up to the time of the testator's death can be "separated out" from the preference shares themselves, and if there were, those rights--ceasing to exist (as they did) upon the death of the testator--could not be made dutiable under either paragraph (f) or paragraph (j) of s104(1).
In the result, on the death of the testator his 20,000 preference shares became worth no more than their face value (20,000 pounds) and the value of the 22,005 ordinary shares increased commensurably with the decrease in value of the preference shares--the process involved being substantially the same as occurred in Robertson v Federal Commissioner of Taxation (1952) 86 CLR 463;  ALR 1. The Commissioner was, therefore, not justified in valuing the 20,000 preference shares at 100,000 pounds instead of the face value of 20,000 pounds assigned by the appellant. There should, however, be added to the estate five ordinary shares at 8 pounds 13s. each--totalling 43 pounds 5s.--which in the return were wrongly described as preference shares, less 5 pounds (the value assigned to them as preference shares).
I am therefore satisfied that the objection of the appellants to the assessment were correct and that the assessment was excessive. The appeal must therefore be allowed.
I therefore order that the assessment be reduced as follows: by reducing the final balance upon which the said assessment was based by an amount of 80,000 pounds less a sum of 38 pounds 5s. for the five ordinary shares and by then calculating the duty payable on and in relation to the final balance (as so reduced) in accordance with the relevant provisions of the Administration and Probate Act 1958 and the Probate Duties Act 1962. The amount of duty payable under the assessment as so reduced, may (if the parties are able to agree on it) be stated (if the parties so desire) in this order when drawn up. I order that any excess of duty paid in conformity with the existing assessment, together with any additional duty or interest paid in consequence thereof, be repaid by the Commissioner to the appellants.
I order that the appellants' costs of, and incidental to, this appeal, including the costs reserved by the order of Starke, J, made on 1 February 1966, be taxed and when so taxed paid by the Commissioner to the appellants.