COURT OF APPEAL OF NEW SOUTH WALES

PERPETUAL TRUSTEE CO. (LTD.) v. COMMISSIONER OF STAMP DUTIES

Jacobs, P. Hope, JA and Hutley, A.-JA

5 December 1972 -

Jacobs, P : By his will dated 18 April 1894 and codicil dated 3 April 1895 George Harris who died on 21 January 1897 devised certain real estate " to my nephews the said John Harris, Walter George Harris, Henry Victor Harris, Reginald William Sydney Harris and Lionel Herbert Matthew Harris, sons of my brother John Harris, share and share alike by lot each for their lives and after the death of each one the share of the deceased one shall be divided amongst the survivors or survivor in like manner until the death of the last survivor of my said nephews then … " . There followed in the will a devise which was revoked by the codicil and replaced with certain other dispositions not unfamiliar to many members of the legal profession in this State. The nature of those other dispositions is not relevant to these appeals.

Reginald William Sydney Harris died on 17 May 1940. At the time of his death s 102(2)(g) of the Stamp Duties Act 1920 had been enacted and was still in force, though it was repealed shortly afterwards and remained repealed until it was re-enacted in 1952 in practically the same terms. Two nephews had predeceased Reginald William Sydney Harris, namely Lionel Herbert Matthew Harris and Henry Victor Harris. The first appeal concerns the question whether any duties are payable under s 102(2)(g) upon the death of Reginald William Sydney Harris in 1940. Of the two then surviving nephews Walter George Harris died on 25 July 1954 leaving John Harris as the only nephew surviving and therefore entitled to the whole of the income of the devised property until his death.

By the time of the death of Reginald William Sydney Harris some of the realty had been sold and by the time of death of Walter George Harris it had practically all been sold. At the death of Reginald William Sydney Harris the fund was of a value of $484,133.72 and at the time of the death of Walter George Harris the fund was of a value of $475,763.25.

Thus on the death of Reginald William Sydney Harris his one-third in the share of the income of the fund to which he was entitled on his death was given over to the two surviving nephews and on the death of Walter George Harris his one-half share in the income of the residuary realty fund was given over to the surviving nephew, John Harris. The Commissioner claims that thereby on the death of each of these nephews respectively the fund is dutiable by virtue of s 102(2)(g) to the extent to which a benefit accrued or arose by cesser of the respective limited interests. On the other hand the appellant which is now the trustee of the will of George Harris claims that neither of the nephews in question had an interest in the fund limited to cease upon his death within the meaning of s 102(2)(g) and claims further that if either of them did have any such limited interest no benefit within the meaning of s 102(2)(g) accrued or arose by cesser of the said limited interest. Both appeals raise an identical point although the actual legislative enactment was in each case a different one. There is no dispute about the consequences in liability to duty once the Court has determined the primary questions of law in dispute.

The first question is whether the deceased had an interest in the fund limited to cease on death within the meaning of s 102(2)(g) . On behalf of the appellant it has been submitted that there was no interest but no argument has been presented in support of the submission separately from the arguments upon the second question, namely, whether a benefit accrued or arose by cesser of the limited interest. It seems to me that clearly there was an interest in each of the nephews here concerned. One of them had a one-third share of the income and the other in the events which happened had a one-half share in the income. Since those shares came to an end on death it seems clear that there were interests limited to cease on the respective deaths.

I therefore pass directly to the second question. It has been submitted that no benefit or interest arose by cesser of the respective life interests by reasoning upon the following lines. It is submitted that the benefit to which s 102(2)(g) refers is a benefit to the property, that is, to the residuary fund in the present case, by reason of the cesser of the life interests. It is then submitted that in order that the benefit may accrue to the property by reason of the cesser of the limited interest the effect of the cesser must be to discharge the property from the interest so ceasing for the benefit of the persons entitled to the capital of that property. Therefore, where property is subject to an interest in favour of the members of a class with a right of survivorship between them, no benefit arises to the property subject to that interest until the whole interest determines by the death of the last surviving member of the class. There is, it is said, no significant difference in this respect between the gift of a continuing annuity charged upon a fund and the gift of successive interests in the income of the fund particularly where the successive interests in the income are by right of survivorship amongst members of a class.

The argument, as I understand it, is based upon English decisions on the Finance Act 1894, ss 1 and 2 . Section 1 of the 1894 Act imposed duty upon " the principal value of all the property … which passes on the death " . Then s 2(1)(b) provided that property passing on the death should be deemed to include " property in which the deceased or any other person had an interest ceasing on the death of the deceased to the extent to which a benefit accrues or arises by the cesser of such interest " . Following a dictum of Lord Macnaghten in Earl Cowley v. Inland Revenue Commissioners, [1899] AC 198 ; [1895-9] All ER Rep. 1181 the view was generally taken in the authorities in England until 1960 that these two provisions were exclusive of each other so that if property fell within s 1 it did not fall within s 2(1)(b) . A life interest clearly fell within s 1 and therefore it was not necessary to consider whether a life interest might come within the words of s 2(1)(b) . What then came within the latter section? The answer that was acted upon was, generally speaking, those interests which imposed a burden on the property, which burden came to an end on the death of the relevant deceased.

From this approach a number of conclusions appeared to follow. Since s 1 dealt with benefits in the property by the concept of property passing, s 2(1)(b) was thought to refer in its reference to " benefit accrues or arises by cesser of such interest " to benefit to the property. The obvious examples of such a benefit are the termination of a rent charge or an annuity payable out of the property (see Attorney-General v. Watson, [1917] 2 KB 427 ). Then the question arose whether there was any benefit to the property where there was a continuing annuity and one of the succession of annuitants died. In Re Duke of Norfolk, [1950] 1 Ch. 467 it was held that in such a case duty is payable on the passing of the annuity from one annuitant to another under s 1 of the 1894 Act but no duty was payable on a slice of the capital of the property charged with the payment of the annuity because, the annuity being a continuing one, there was no benefit to that property.

The basis of much of the decision in Re Duke of Norfolk, supra , was applied in Re Tapp, [1959] Ch. 443 ; [1959] 1 All ER 705 but since both decisions relied to a large extent upon the principle laid down in Earl Cowley v. Inland Revenue Commissioners, supra , the basis of them might have been regarded as somewhat shaken by the decision of the House of Lords in Public Trustee v. Inland Revenue Commissioners, [1960] AC 398 ; [1960] 1 All ER 1 which disapproved the dictum of Lord Macnaghten in Earl Cowley v. Inland Revenue Commissioners, supra . Nevertheless the view was continued to be held in England that s 2(1)(b) could not apply in the case of a continuing annuity because no benefit accrued to the property on the death of the first annuitant (see Re Harris ' Will Trusts, [1966] Ch. 475 ; [1966] 1 All ER 677 per Buckley, J., where he followed the reasoning of Jenkins, LJ, in Re Duke of Norfolk, supra ).

The English authorities are relied on by the appellant in support of the claim that the benefit referred to in s 102(2)(g)(i) is a benefit to the property and then the appellant proceeds further and says that after the House of Lords decision in Public Trustee v. Inland Revenue Commissioners, supra , it is no longer correct to draw a distinction between a succession of life estates and a succession of annuities. It seems to me that the argument proceeds on a number of wrong assumptions. First, there is the assumption to which I have just referred, namely, that the reasoning in Re Duke of Norfolk, supra , Re Tapp, supra , and most recently Re Harris, supra , is as applicable to a succession of life estates as it is to a continuing annuity with a series of dispositions thereof. Secondly, it is assumed that the words in s 102(2)(g) " to the extent to which a benefit accrues or arises " refer to a benefit to the property itself and not to a benefit to a person or persons. In my view the first assumption is certainly wrong and the second one probably so. I shall deal with them in turn.

In my opinion there can be no equation of a succession of life estates with a succession of annuities. The whole basis of the English authorities, as I understand them, is that the continuing annuity is in a different position entirely from a succession of life estates. It was so stated by Evershed, MR, in Re Duke of Norfolk, supra , at [1950] 1 Ch., p. 478(see also per Jenkins, LJ, at pp. 488-489). In effect what is here submitted is that the effect of Public Trustee v. Inland Revenue Commissioners, supra , was to extinguish the difference between a succession of life estates and a continuing annuity, but this is not so. It is true that that decision did not regard the area of the two sections in the English legislation as exclusive but the effect was, according to the decision of Buckley, J., in Re Harris , supra , to leave part of the reasoning of Jenkins, LJ, in Re Duke of Norfolk, supra , untouched. In my opinion the part of the reasoning which remained untouched was that which distinguished between the case of a succession of life estates and that of a continuing annuity. It is sensible to regard a continuing annuity as one piece of property but it is not sensible so to regard a succession of life estates. It must be borne in mind that the English cases to which I have referred were not dealing with a mere succession of annuities but with a continuing annuity. If there had been a mere succession of annuities in Re Duke of Norfolk, supra , the conclusion would have been different. See per Evershed, MR, at p. 479 where he said: " It is true that the distinction may seem a fine one between the two cases and (more so) between the case of successive takers of a continuing annuity on the one hand, and the case of takers of successive but distinct annuities of the same amount on the other. But the distinction rests on the essential characteristics of an annuity and (in the case of successive takers of distinct annuities) on the circumstance that there is no passing of any property within s 1 , but an artificial passing within s 2 … . " There is no point of similarity between a continuing annuity on the one hand and a succession of life estates on the other that can in my view make any of the English authorities applicable to the circumstances of the present case.

The second assumption in the argument is that the words in s 102(2)(g) " to the extent to which a benefit accrues or arises " refer to a benefit to the property itself and not to a benefit to a person or persons. In my opinion the reasoning which led to the construction of s 2(1)(b) of the 1894 English Act cannot be applied to the New South Wales provision. That the latter applies to the cesser of a life interest in property is undoubted. However, the cesser of a life interest in property does not affect the property in any way at all. It only affects the persons who are beneficially entitled to the enjoyment of the property. It is understandable that in England once the view expressed in Earl Cowley v. Inland Revenue Commissioners, supra , came to be applied the benefit should have been regarded as a benefit accruing or arising to the property because s 2(1)(b) was not regarded as applicable where the benefit of the property passed from one to another. One could be excused for doubting whether the same approach could be made after Public Trustee v. Inland Revenue Commissioners, [1960] AC 398 ; [1960] 1 All ER 1 but it was held that it did by Buckley, J., in Re Harris ' Estate, supra (see at [1966] Ch., pp. 482-483). However that may be, we are concerned with the New South Wales provision and its context is quite different in the manner to which I have referred. In my opinion the natural meaning of the words in the New South Wales legislation is " a benefit to a person or persons " . This makes sense of the immediately following words which refer to surrender, assurance, divesting or disposition of the limited interest. It may be that in any case a continuing annuity is in a special class of a kind which requires that it be treated much in the way it has been treated in the English decisions. I express no opinion of any kind upon that question but, however it may be answered, it does not affect the conclusion that what are brought to duty by sub paragraph (g) are estates or interests in property limited to cease on death. These words clearly include life estates and since no benefit accrues or arises to property on the cesser of a life estate it would in my opinion be unreasonable to read in such a requirement when it is not expressed.

I am therefore of the opinion that there is no firm basis for the submissions which have been put forward by the appellant. The questions should therefore be answered as follows:

In the estate of Reginald William Sydney Harris

(a) Q. - Did the deceased have an interest in the residuary realty fund limited to cease on his death within the meaning of s 102(2)(g) of the Stamp Duties Act, 1920-1939? A. - Yes.

(b) Q. - If the answer to (a) is Yes, did a benefit accrue or arise within the meaning of the said s 102(2)(g) by cesser of the said limited interest? A. - Yes.

(c) Q. - As a result of the death of the deceased is the estate of the testator liable for duty in the sum of (i) $4207.09; or (ii) $39.74; or (iii) some other and, if so, what sum? A. - $4207.09.

(d) Q. - Should the costs of this stated case be borne and paid by (i) the appellant; or (ii) the respondent? A. - By the appellant.

In the estate of Walter George Harris

(a) Q. - Did the second deceased have an interest in the residuary realty fund limited to cease on his death within the meaning of s 102(2)(g) of the Stamp Duties Act, 1920-1954? A. - Yes.

(b) Q. - If the answer to (a) is Yes, did a benefit accrue or arise within the meaning of the said s 102(2)(g) by cesser of the said limited interest? A. - Yes.

(c) Q. - Subject to an adjustment to take into account the deduction of costs and expenses payable out of the residuary realty fund in respect of the assessment by the Commissioner of Stamp Duties of duty claimed by him to be payable in consequence of the death of Reginald William Sydney Harris is the duty chargeable upon the estate of the testator as a result of the death of the second deceased (i) $67,173.40; or (ii) $191.53; or (iii) some other and, if so, what amount? A. - $67,173.40.

(d) Q. - Should the costs of this stated case be borne and paid by (i) the appellant; or (ii) the respondent? A. - By the appellant.