COURT OF APPEAL OF NEW ZEALAND

THOMPSON v INLAND REVENUE COMMISSIONER (NZ)

RICHARDSON, McMullin and Somers JJ

11 February 1982 -

Richardson J This is an appeal against a judgment of Greig J delivered in the High Court at Hamilton on 12 March 1981 upholding an assessment of estate duty payable by the present appellants as executors of the will of Ewart Jack Preest, who died on 8 May 1977. The judgment is now reported at Re Preest, Thompson v IRC (NZ) (1981) 4 TRNZ 308 and NZ E and GDR 15-020. The issue determined in favour of the Commissioner of Inland Revenue in the High Court was whether the final balance of the estate of the late Mr Preest for estate duty purposes was affected by an order made in the High Court on 8 December 1978 under the Matrimonial Property Act 1963 on the application of the widow in which Vautier J ordered that she be paid $106,877 out of the estate. To see that issue in perspective it is necessary to refer to the factual background.

The final balance of the estate after deducting allowable debts and the matrimonial home allowance of $36,000, and leaving aside for the moment the effect of the matrimonial property order, was $376,485.47 giving rise to an estate duty liability of $111,986.19. In terms of Mr Preest ' s will, which had been made on 22 February 1967 over 10 years before his death, the widow received a legacy of $500 together with household furniture and personal effects and motor car; an annuity of $2,500 with power in the trustees to resort to capital to supplement the annuity if the net annual income in any year fell below that sum; and the right personally to reside in the matrimonial home situated on the deceased ' s farm property. It seems that the widow also received as nominee the proceeds of the deceased ' s Post Office savings account amounting as at the date of death to $18,075 and the proceeds of a life insurance policy which he had earlier assigned to her and which had a death value of $10,260. Apart from pecuniary legacies of $500 each to his grandchildren the testator left the residue of his estate subject to the widow ' s interest to his two children: a son, who was named as executor, and a daughter whose husband was the other executor.

Mr and Mrs Preest had been married for 48 years at the time of his death. The matrimonial property application was not filed until 11 May 1978, over a year later, and there is no suggestion in the papers before the High court in the matrimonial property proceedings that any question had arisen between them in relation to matrimonial property. In her affidavit in support of the application the widow described the marriage as a particularly happy one and deposed that " a question has arisen between my late husband ' s estate and myself as to the title to property owned by him at the date of his death … " I mention that now because of the bearing it has on the application of the Matrimonial Property Act 1963 and the Estate and Gift Duties Act 1968. However, I should add at this point that the application was properly made by the widow under the Matrimonial Property Act and within the time limit for commencement of proceedings.

Although the Matrimonial Property Act 1976 was in force it was the 1963 Act which governed the position where, as here, proceedings had not been commenced at the death of the spouse: Matrimonial Property Act 1976 s 5(1) and s 57(4). The relevant provisions of the 1963 Act are ss 5, 5A, 6and 8A (s 6A relating to wrongful conduct of the parties not calling for consideration in this case). For the purposes of those sections the terms " husband and wife " include legal personal representatives of the husband and wife (s 5(7)) and, in the case of an application made after the death of a party to the marriage, s 5A(2)(b) imposes a time limit of 12 months after the grant in New Zealand of administration in the estate of the party to the marriage against whose estate the application is made.

The relevant jurisdictional provisions are s 5(1)and (2) and s 6 which respectively provide:

" 5(1) In any question between husband and wife as to the title to or possession or disposition of property (including any question as to investment by one party of money of the other without consent) the husband or the wife, or any person on whom conflicting claims are made by the husband and wife, may apply to any Judge of the Supreme Court or, subject to the provisions of subsection (4) of this section, to a Magistrate ' s Court.

" (2) On any such application the Judge or Magistrate may make such order as he thinks fit with respect to the property in dispute, including but without limiting the general power conferred by the foregoing provisions of this subsection any order for -
(a) The sale of the property or any part thereof and the division or settlement of the proceeds; or

(b) The partition or division of the property; or

(c) The vesting of property owned by one spouse in both spouses in common in such shares as he thinks fit; or

(d) The conversion of joint ownership into ownership in common in such shares as he thinks fit; -

and may make such order as to the costs of and consequent upon the application as he thinks fit, and may direct any inquiry touching the matters in question to be made in such manner as he thinks fit. "

" 6(1) In considering any application under section 5 of this Act, the Judge or Magistrate shall, where the application relates to a matrimonial home or to the division of the proceeds of the sale of a matrimonial home, and may in any other case, have regard to the respective contributions of the husband and wife to the property in dispute (whether in the form of money payments, services, prudent management, or otherwise howsoever).

" (1A) The Judge or Magistrate ' s Court may make an order under section 5 of this Act in favour of a husband or wife, notwithstanding that he or she made no contribution to the property in the form of money payments or that his or her contribution in any other form was of a usual and not an extraordinary character.

" (2) The Judge or Magistrate shall not exercise the powers conferred upon him under sub section (2) or sub section (3) of section 5 of this Act so as to defeat any common intention which he is satisfied was expressed by the husband and the wife. "

Thus jurisdiction is grounded in the existence of a " question between husband and wife " or the personal representatives of either or both " as to the title to or possession or disposition of property " : s 5(1). Where that jurisdiction exists the Judge has a discretion to make " such order as he thinks fit with respect to the property in dispute " : s 5(2). It is a discretion to be exercised on principle and having regard to the matters referred to in s 6. Finally, s 8A provides for the incidence of orders against personal representatives of a deceased husband or wife. The primary rule is that the incidence " shall fall upon the property in respect of which the order is made " : subs (1). This is subject to the proviso that the Judge may order that the incidence shall fall rateably upon the whole estate or a specified portion of the estate and may exonerate any part of the estate from the incidence.

The widow ' s application in the present case sought a share in her late husband ' s property. It was supported by a detailed affidavit which set out the history of the marriage and the contributions she had made both on the farms and more predominantly in the performance of household and family services. The application was not opposed by her children, the residuary beneficiaries, and the executors did not appear at the hearing before Vautier J. It is also common ground that the application was not brought to the notice of the Commissioner at that time.

In his reserved judgment Vautier J characterised the family history as typical of the life of a great many frugal, hard working farming couples in New Zealand. After analysing the widow ' s particular contributions he concluded that they extended far beyond those of the ordinary wife in the management of the household and the performance of household duties, and that there was much more of the element of a couple jointly carrying on the business of farming. In those circumstances and applying settled principles he considered that a substantial share in the business assets was properly claimable by the wife under the 1963 Statute and that it would be doing no more than justice to allow her a one quarter share of the total assets as suggested by her counsel. The Judge went on to say it seemed that that result could most conveniently be achieved by an order that there be paid to the applicant out of the estate of the husband the sum of $106,877, such sum to be satisfied by vesting in her certain mortgages which were assets in the estate. Against that background I turn to consider the application of the relevant provisions of the Estate and Gift Duties Act 1968.

The basic argument for the appellants was that the property the subject of the orders under the Matrimonial Property Act was not property of the deceased passing under his will within the meaning of s 7 or otherwise forming part of his dutiable estate. His submission was that before any person became beneficially interested under the will the matrimonial property orders intervened to prevent a beneficial interest in that property passing to a beneficiary under the will, and he went on to submit that the widow became beneficially entitled not under the will but pursuant to those orders.

Liability for estate duty is imposed by the Act itself: subs (3). The duty is charged on the final balance which is the total value of the dutiable estate less the allowable debts and the matrimonial home allowance: ss 4and 5. The liability arises on death and the Commissioner acts in the quantification of the statutory liability. That is a basic feature of the Act and the critical importance of determining for estate duty purposes the position as at the date of death is reflected in the statutory scheme: see, for example, s 53(1)and (2), and s 56(1), s 6 as to the dutiable estate; s 17 as to allowable debts; and ss 19and 27 as to valuations. So, in principle, and subject only to certain limited exceptions expressly provided for (for example, s 17(2)(c)and (d), s 26 and s 29), supervening events cannot be taken into account in determining what property is included in the dutiable estate and what are the allowable debts.

Section 7 of the Estate and Gift Duties Act 1968 provides:

" (1) The dutiable estate shall include all property of the deceased which passes under his will intestacy, except property held by him as trustee for another person.

" (2) For the purposes of this Act, the provisions of any order of Court under the Law Reform (Testamentary Promises) Act 1949 or the Family Protection Act 1955 shall apply as if they were part of the will of the deceased, or, if the deceased died without leaving a will, as if the deceased had died leaving a will containing the provisions of the order. "

Subsection (1) brings into the dutiable estate all property of the deceased which passes under the will or on the intestacy of the deceased except to the extent that it is property held exclusively in a fiduciary capacity. That is the yardstick. " Passes " is not used in a technical sense and in general it may be taken as meaning " changes hands " : Nevill v IRC [1924] AC 385 at 389. The subject of the sub section is property the beneficial interest in which passes to the personal representatives to be dealt with by them in accordance with the provisions of the will or as on an intestacy. Sub section (2) treats orders under the Law Reform (Testamentary Promises) Act 1949 and under the Family Protection Act 1955 as testamentary and thus affects the value of the succession in respect of which reliefs are provided

(ss 36- 41), and in that way the quantum of estate duty: and see s 60(2). To that extent it modifies the general principle of estate duty law that events subsequent to death are disregarded for duty purposes. In that regard, too, s 48(4) of the Matrimonial Property Act 1976, expressly provides that where an order is made under that Act against the personal representatives of a deceased husband or wife other than orders made under s 27 or s 28 of the Act the property comprised in the order shall not form part of the estate of the deceased for the purposes of the Estate and Gift Duties Act 1968 or of the Family Protection Act 1955, but there is no comparable provision in the 1963 Act.

In the present case there is no basis either in principle or in the legislation for concluding that the $106,000 or the specific property referred to in the orders was not within the description of " property which passes under the will of the deceased " as at the date of his death. Or, to put it another way, there was nothing to derogate in that respect from the equitable interest of the husband in that property. The wife had made no claim to the matrimonial property. There was no question between her and the testator as to the title or possession or disposition of property within s 5(1) of the Matrimonial Property Act. It was not a case where at the time of his death she had a statutory interest in the property under the Matrimonial Property legislation. She may have had a claim under the Family Protection Act which, had it resulted in orders in her favour, would have attracted the application of s 7(2) of the Estate and Gift Duties Act. In that regard Vautier J observed that it had not been deemed necessary in the circumstances of the case for an application to be made simultaneously in terms of the Family Protection Act as was common practice in such circumstances.

In the result it cannot possibly be said that the orders made by Vautier J were made in the ascertainment and quantification of a beneficial interest of the wife existing as at the date of death in the property of the deceased. Rightly, then, the orders did not purport to operate retrospectively to the date of death. They took effect at the time they were made and were thereupon superimposed on the trusts under the will pursuant to the provision of the Matrimonial Property Act. But the beneficial interest was not in limbo following the death of the husband. It passed to the executors to be dealt with by them in accordance with the provisions of the will. It follows that the orders made under the Matrimonial Property legislation did not affect the property to be included in the final balance of the estate, that question being determinable as at the date of death. On that basis and at that date the full $106,000 falls for inclusion in that dutiable estate.

In this court Mr Faire did not rely on the provisions of s 17(2)(c)and (d) recognising, rightly in my view, that it could not possibly be contended that the $106,000 was a debt owing at the date of death.

For the reasons given I would dismiss the appeal. In the result I prefer to reserve for consideration in other proceedings the question raised in the High Court as to whether in such circumstances the Commissioner is bound by an order under the Matrimonial Property Act 1963.

The court being unanimous the appeal is dismissed. The respondent Commissioner is entitled to costs on the appeal which are fixed at $400 together with any reasonable disbursements as fixed by the Registrar.