Chesterman v Federal Commissioner of Taxation

32 CLR 362

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(Decision by: ISAACS J)

Between: CHESTERMAN
And: FEDERAL COMMISSIONER OF TAXATION

Court:

Judges: Knox CJ

Isaacs JHiggins J
Rich J
Starke J

Subject References:
Succession
Estate duty
Exemption
'Charitable purposes'
Annuity

Legislative References:
Estate Duty Assessment Act 1914 (No 22) - the Act

Hearing date: 20 February 1923; 21 February 1923; 22 February 1923; 23 February 1923; 26 February 1923
Judgment date: 6 June 1923

MELBOURNE

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Decision by:
ISAACS J

The first question is whether the part of the estate subject to the Peter Mitchell Trust is exempt from duty under the 5th sub-section of s. 8 of the Estate Duty Assessment Act.

In order to be exempt it must be devised or bequeathed for

(a)

religious or

(b)

scientific or

(c)

charitable or

(d)

public educational purposes,

within the meaning of that sub-section. I would observe that it is sufficient if the purposes cover one or more of those enumerated, provided they do not extend beyond the limits of the sub-section. It is not suggested in the present case that the purpose was religious. Nor is the gift attempted to be supported on the basis of scientific purposes. It was strenuously urged, however, for the executors that it fell within the term "charitable," and also, with less vigour, that it came within the expression "public educational." As to "charitable," the whole stress of that contention was laid on the point that the word should, on sound construction, be given the sense called Elizabethan, so clearly and authoritatively expounded in Pemsel's Case. ^[F12] For the Commissioner it was contended that the word "charitable" as used in the sub-section was to be understood in its popular sense, that is, in the sense which in such a collocation it would be understood to bear in ordinary life. The question, therefore, as to "charitable" is whether, in the enactment referred to, that word is to be understood in what Farwell J. in In re Best, ^[F13] at p. 356 calls "the curiously technical meaning which has been given by the English Courts to the word `charitable,' " or whether Parliament has indicated that it means the word to have the ordinary meaning given to it in daily life. Pemsel's Case is first and foremost an authoritative pronouncement that the phrase "trust for charitable purposes" is primarily a technical legal phrase with a well-known connotation, namely, as having reference to the Statute of Elizabeth. It also determines that, in the absence of sufficient indication to the contrary, the technical meaning of any phrase should prevail. For this there are many other authorities, some of the most important of which I collected in the case of Gutheil v Ballarat Trustees, Executors and Agency Co, ^[F14] at pp. 302-304. But in the application of these rules minds easily differ. For instance, in Pemsel's Case Lord Halsbury and Lord Bramwell dissented. And one of the three eminent jurists who composed the majority, Lord Herschell, in the very next year-indeed within eight months afterwards-was led to a non-technical interpretation of the words "charitable purpose" in another Act, by the collocation (Commissioners of Inland Revenue v Scott ^[F15] ). The words there closely approached the words in the present case. They were:

"for any purpose connected with any religious persuasion, or for any charitable purpose, or for the promotion of education, literature, science, or the fine arts."

Lindley and Kay L.JJ. agreed with Lord Herschell. The guiding principle was stated ^[F16] that

"each statute must be looked to by itself for the purpose of ascertaining its meaning and the position in which the general words are found, and the nature of the specific exemptions cannot be lost sight of."

That decision was referred to with emphatic assent by Lord Cozens Hardy M.R. in R. v Special Commissioners of Income Tax. ^[F17] The Master of the Rolls said as to Scott's Case: ^[F18]

"The generality of the term for `charitable purposes' would have been meaningless if placed, as it was, before and after special charitable purposes of a particular kind."

It is noteworthy that in 1887 the Supreme Court of New Zealand, on appeal, held that the words "public charitable purposes" in a Property Assessment Act being followed by the words "public educational purposes" were to be construed in a non-technical sense, as otherwise the same thing would have been provided for twice over. The case is Sperry v Church Property Trustees; ^[F19] and the reasoning commends itself to me. Reference is there made to a decision of Lord Cairns in Dolan v Macdermot, ^[F20] where the Lord Chancellor in construing a will containing the words "charities and other public purposes" gave weight in construing the word "charities" to the words following it, as showing that the testator did not mean private charities. In that case also a salutary reminder is given ^[F21] that

"in construing a will of this kind the Court must not lean to the side of avoiding the will in order to gain money for the family, nor, on the other hand, strain to support the will to gain money for the charity."

The latest and, as I consider, the most authoritative instance is Attorney-General for New Zealand v Brown. ^[F22] There the will declared that a fund should be held on trust for such "charitable benevolent religious and educational institutions societies associations and objects" as his trustees should select. Some doubt was admitted as to whether the word "charitable" there covered and coloured the whole of the succeeding words. But there was an investment clause directing the trustees to deposit the funds "with any firm bank company or corporation or public body or institution commercial municipal religious charitable educational or otherwise." On this, Lord Buckmaster, speaking for Lord Parker and Lord Phillimore as well as himself, said: ^[F23]

"In their Lordships' opinion this shows that the meaning of the word `charitable' in the testator's mind was something that did not embrace religious or educational purposes, and that it ought rather to be regarded as eleemosynary, an interpretation which at once prevents tautology and gives a sensible meaning to each of the words."

I cannot conceive of a more apposite precedent. When I consider how true is the expression quoted from the judgment of Farwell J. in Best's Case ^[F24] "as to the curiously technical meaning" of "charitable," and the observation of Lord Cairns in Dolan v Macdermot ^[F25] that "there is, perhaps, not one person in a thousand who knows what is the technical and the legal meaning of the term `charity,' " I am assisted, in construing this taxation Act, in arriving at the conclusion that the respondent's contention is correct. If the word "charitable" were there to receive its "curiously technical meaning," there are decisions which show how far it would extend to relieve estates from the common contribution to taxation. For instance, the following have been held to be "charitable" in that sense: "Home for starving and forsaken cats" (Swifte v Attorney-General ^[F26] ); the promotion of vegetarianism (In re Cranston ^[F27] ); for "the promulgation of ... Conservative principles combined with mental and moral improvement, Socialism, anti-vivisection principles." (See Halsbury's Laws of England, vol. IV., s. 182, and the cases there cited.) That would be a strange intention to impute to the Federal Legislature. Following the words of Lord Buckmaster in Brown's Case, ^[F28] I am very distinctly of opinion that to prevent tautology and to give to each word a sensible meaning the word "charitable" in s. 8 (5) of the Estate Duty Assessment Act has not the extensive Elizabethan meaning, but has what may be shortly, though perhaps incompletely, called its eleemosynary meaning. It must be remembered that "eleemosynary" is not confined to mere relief of poverty. Eleemosynary corporations, says Blackstone (vol. I., p. 471),

"are such as are constituted for the perpetual distribution of the free alms, or bounty, of the founder of them to such persons as he has directed. Of this kind are all hospitals for the maintenance of the poor, sick, and impotent; and all colleges, both in our universities and out of them: which colleges are founded for two purposes;

1.

For the promotion of piety and learning by proper regulations and ordinances.

2.

For imparting assistance to the members of those bodies, in order to enable them to prosecute their devotion and studies with greater ease and assiduity."

This, of course, is not exhaustive, but is illustrative.

"Charitable" must therefore, in the sub-section referred to, be understood in its "popular" sense. That does not admit of any rigid or undeviating connotation. It is flexible to an immeasurable degree, as can be seen by reference to the judgments of such eminent masters of law and language as the Judges who sat in Pemsel's Case. ^[F29] I am disposed to think Lord Herschell ^[F30] (with whom Lord Watson concurred) stated the central truth when he said that "the popular conception of a charitable purpose covers the relief of any form of necessity, destitution, or helplessness which excites the compassion or sympathy of men, and so appeals to their benevolence for relief." He carefully explains that he intends that in no narrow sense, because he states that within his statement come spiritual needs quite as much as physical needs, and he says ^[F31] as to charitable purposes "the proper course would be to prefer the broadest sense in which they are employed." I take "charitable" to cover all that Lord Herschell includes, and to comprise benevolent assistance in aid of physical, mental, and even spiritual, progress for the benefit of those whose means are otherwise insufficient for the purpose. But I exclude the idea that is involved in the technical meaning of "charity," that except in trusts directly for the relief of "poverty" the distinction between rich and poor has no relevance.

Judged by this standard. I cannot hold the gifts for the Peter Mitchell Fund to be "charitable." I think the testator distinctly meant to negative such a notion. He says:

"It is not for the purpose of a gift for the benefit of the weak, failing and sick, but to improve the sane, normal and healthy for the benefit of the Empire and future generations."

No one can deny that such a purpose is laudable, but the question is this: "Is it charitable?" Nothing in the terms of the gift indicates charity. There are to be military and quasi-military competitions for soldiers, naval and quasi-naval competitions for sailors, there are to be undescribed competitions for police, and there are for young unmarried females to be physical examinations, and examinations as to knowledge theoretic and practical, historical and geographical; and prizes are to be provided. But again I am unable to apply to these competitions in any proper sense the term "charitable" as intended in the Act.

This brings me to the last term "public educational purposes." It is to be observed that by sub-s. 8 of the same section it is enacted that that phrase includes "the establishment or endowment of an educational institution for the benefit of the public or a section of the public." That, in the first place, confirms my view of the meaning of the word "charitable," because under the technical meaning of "charitable" it would be no objection that a gift was for a section of the public (Attorney-General v Lawes, ^[F32] at p. 41). But if the non-technical construction be given to "charitable," and the phrase "public educational purposes" be, like "charitable," regarded from the standpoint of ordinary meaning, then the word "public" might give rise to some serious doubt if it were sought to apply it to a section of the public. Sub-s. 8 is, therefore, doubly indicative of the ordinary meaning; and so I have to inquire as to the ordinary meaning of "public educational purpose" bearing in mind sub-s. 8. I think, to begin with they must be "educational" in the sense that they provide for the giving or imparting of instruction. The reasoning in Whicker v Hume ^[F33] is important on this point. The parliamentary sense of "educational" as well as "charitable," as understood in Australia in 1914, can be seen by reference to the Appropriation Acts of the States-as, for instance, New South Wales Act No. 26 of 1914; New South Wales Act 43 Vict. No. 23 (Public Instruction); New South Wales Act No. 27 of 1901 (Public Institutions Inspection); Victorian Education Act No. 2644 (of which see especially s. 17); Victorian Appropriation Act No. 3170 (Treasurer, Division No. 48, and Minister of Public Instruction); Western Australian Act No. 32 of 1909 (Public Education Endowment). Other Acts indicating the Australian sense of "charitable" include New South Wales Acts No. 35 of 1902 (s. 110) and No. 16 of 1906 (s. 12), and South Australian Act of 1912, No. 1078. These are instances, and I have made no exhaustive search. Such public legislative recognitions of the words "educational" and "public education" as I have mentioned are only confirmatory of the general understanding of these words as connoting the sense of imparting knowledge or assisting and guiding the development of body or mind. Within that orbit the field is wide, and extends from elementary instruction in primary schools to the highest technical scientific teaching in the Universities. But even this vast range will not embrace mere examination in proficiency already attained, without affording any means of increasing that proficiency. No doubt, an incentive to exertion is created, and that incentive may again be the exciting cause of obtaining educational help, but the "purposes" pointed to by the sub-section under consideration are intended to be primary and direct, not remote and accidental.

The result is that, in my opinion, none of the gifts for the Peter Mitchell Trust is within the exemptions of sub-s. 5 of s. 8 of the Act. I wish to say that I express no opinion as to whether these gifts or any of them are "charitable" in the Elizabethan sense. That is not before us, once the conclusion is arrived at that "charitable" in the sub-section is not to be read in that sense. Mr. Ham very properly said he neither admitted nor denied they were charitable in the technical sense, but urged that, even if it were conceded that they were, still they were not within the statutory exemption. I therefore abstain from expressing any opinion on that subject.

Then there is a gift over, which is in these terms: "And in case the bequests trusts and dispositions hereinbefore contained or any of them shall for any reason wholly or partially fail or be declared by any Court incapable of taking effect or in case any portion of the corpus or income of my estate shall not by this my will or any codicil thereto be effectually disposed of otherwise then I give the property or funds so undisposed of to my trustees upon trust for such non-sectarian charitable uses purposes or institutions as my trustees shall in their absolute and uncontrolled discretion decide upon." As to this, some difficult questions might arise as to whether the conditions of the gift over have arisen, or what the effect of such conditions would be. But the first question to be determined as to the gift over is whether it is to be understood in the statutory sense. If not, then again it is entirely outside our consideration, whatever its position may be in the technical sense. As to this I say nothing as to what the simple unqualified phrase "charitable institutions" might convey, particularly in this will where the word "charitable" occurs before. But the composite phrase is "upon trust for such non-sectarian charitable uses purposes or institutions," etc Reading that phrase in a will and on the whole context of this will, I am of opinion, having regard to the principles of interpretation referred to, that the meaning to be ascribed to "charitable" in that connection must be the technical one. But as the provision is "such trusts etc as my trustees shall in their absolute and uncontrolled discretion decide upon," it is plain to demonstration that the trustees have the whole range of technical "charity" to select from. It is consequently open to them to choose forms of "charity" quite outside the statutory exemptions, with the result that the appellants fail to show that the gift is confined to the four heads of exemption enumerated.

My answer to the first question is, for the reasons given, in the negative.

2. A trenchant argument on the second question was advanced on behalf of the appellants, namely, that no part of a testator's estate passes to an annuitant under the will. This cannot be sustained. It was submitted that the gift is out of future income that could not belong to the testator. But that is an impossible position. No testator as such can give anything except out of his estate. The will speaks as at his death, and an annuitant simpliciter is entitled to the annual sum to commence from the death (Houghton v Franklin ^[F34] ). An annuity is a legacy (Heath v Weston ^[F35] ). Then as to the part of the estate that passes. For assessment purposes that must be found by valuation (see Wroughton v Colquhoun ^[F36] ), and here on the basis that the estate is sufficient to satisfy all legacies in full. But, as there is a defeasance, that must be taken into account (see Gratrix v Chambers ^[F37] ).

3. The answer to this question is necessarily Yes; not because there is a gift of an annuity but because what is given is part of the estate. If it were not for the different rate provided by sub-s. 6 of s. 8 of the Assessment Act, it would not be necessary at this stage to have any reference to the annuity.

4. In my opinion reg. 33 of Statutory Rules No. 267 of 1917 is not valid. It is, in the circumstances, necessary for the purpose of the Act to calculate the value of the widow's life interest. That value, in the absence of contrary statutory direction, must mean the actual value. Actual value must have reference to all circumstances, and one very material circumstance is the defeasibility of the gift. I have referred to one authority, though it is hardly needed. The regulation referred to provides a cast-iron rule for all annuities (inter alia), whether indefeasible or not, or, if defeasible, whatever the nature of the condition, and whether the annuity is secured on corpus or income; in fact, irrespective of the terms of the gift so long as it is an annuity. The only suggested authority for that is s. 50 of the Act, which enables the Governor-General to make regulations, not inconsistent with this Act, prescribing all matters which by this Act are required or permitted to be prescribed, or which are necessary or convenient to be prescribed for carrying out or giving effect to this Act.

It is said that under the words "necessary or convenient" the regulation is permissible. The answer is: the regulation is "inconsistent" with actual value, which is what is taxed by the Estate Duty Act (No. 25 of 1914) and is therefore aimed at in sub-s. 6 of s. 8, and inconsistent with "value" in s. 35 of the Assessment Act, where it obviously means actual value.