PROBERT v COMMR OF STATE TAXATION (SA)

Judges:
Olsson J

Court:
Supreme Court of South Australia

Judgment date: Judgment given 9 October 1998

Olsson J

This is an appeal against an assessment of Stamp Duty made by the Commissioner of Stamps (``the Commissioner''), following the refusal of the Treasurer to allow an objection against it.

2. The relevant facts are of simple compass. They are not in dispute.

3. One Henry Hubbard (``the testator'') died on 2 March 1997, having duly executed a Will dated 29 November 1995. That Will, which was admitted to probate on 6 June 1997, was expressed as under:-

``THIS IS THE LAST WILL AND TESTAMENT of me RALPH HENRY

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HUBBARD of Hahndorf Nursing Home 1A Main Road Hahndorf in the State of South Australia Investor.

1. I REVOKE all Wills and testamentary dispositions heretofore made by me AND I DECLARE this to be my last Will and Testament.

2. I APPOINT my niece MERILYN JOYCE HANNAFORD (hereinafter called `my Trustee') to be the sole Executrix and Trustee of this my Will AND I DIRECT that if the said MERILYN JOYCE HANNAFORD shall refuse to act or shall be unable through death or otherwise so to act or shall renounce Probate THEN I APPOINT my sister YVONNE JOYCE PROBERT to be the sole Executrix and Trustee of this my Will.

3. I GIVE AND BEQUEATH the sum of TWO THOUSAND DOLLARS to my friend GRACE SATCHELL.

4. I GIVE DEVISE AND BEQUEATH all my real and personal estate of whatsoever kind and wheresoever situate not hereby or by any Codicil hereto otherwise disposed of unto my Trustee UPON TRUST to pay thereout my funeral and testamentary expenses and debts and subject thereto I DIRECT my Trustee to stand possessed of the balance of my said real and personal estate UPON TRUST for such of them my said sister YVONNE JOYCE PROBERT and my said niece MERILYN JOYCE HANNAFORD as shall be living at my death if more than one then equally for their own use and benefit absolutely.

IN WITNESS whereof I have to this my last Will and Testament set my hand this 29th day of November 1995.
The Testator being unable to read this
Will was read over to him by Andrew
Alfred Burdett in the presence of         RALPH HENRY HUBBARD
Christopher Say
whereupon the Testator stated that he     X HIS MARK
knew and approved its contents.
It was then signed by the Testator
in the presence of both of us present
at the same time and attested by us
in the presence of him and of each other.
          
Witness (signed)Witness (signed)

AddressAddress

OccupationOccupation''

4. As appears from the Will the testator bequeathed the net residue of his estate to his sister Yvonne Joyce Probert and his niece Merilyn Joyce Hannaford in equal shares.

5. The value of the estate (after allowing for funeral and chemist expenses) was declared, for probate purposes, to be $446,240.31. The pecuniary legacy referred to in the Will had, of course, first, to be paid out of the estate, before arriving at any net figure related to residue.

6. On 12 May 1997 Yvonne Joyce Probert executed an instrument expressed in the following terms:-

``THIS DEED OF DISCLAIMER made the 12th day of May 1997 BY YVONNE JOYCE PROBERT of Swamp Road Uraidla in the State of South Australia Widow WHEREAS:

A. My brother RALPH HENRY HUBBARD late of Hahndorf Nursing Home 1A North Road Hahndorf in the said State Investor (hereinafter called `the deceased') died on the 2nd day of March 1997.

B. The deceased by his Will dated the 29th day of November 1995 after the payment of a legacy provided as follows:

`I GIVE DEVISE AND BEQUEATH all my real and personal estate of whatsoever kind and wheresoever situate not hereby or by any Codicil hereto otherwise disposed unto my Trustee Upon trust TO PAY THEREOUT MY FUNERAL AND TESTAMENTARY EXPENSES AND DEBTS AND SUBJECT THERETO I direct MY Trustee to stand possessed of the balance of my said real and personal estate UPON TRUST for such of them my said sister YVONNE JOYCE PROBERT and my said niece MERILYN JOYCE HANNAFORD as shall be living at my

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death if more than one then equally for their own use and benefit absolutely.'

C. I the said YVONNE JOYCE PROBERT have not received any benefit from the estate of the deceased and desire to disclaim all my interest therein.

NOW THIS DEED made in pursuant of the said desire WITNESSETH that I the said YVONNE JOYCE PROBERT HEREBY IRREVOCABLY DISCLAIM AND RENOUNCE all my right title or interest to or in the estate of the deceased to which I am or may be entitled pursuant to the Will of the deceased or may otherwise be entitled under the Administration & Probate Act 1919 as amended or otherwise at law.

EXECUTED AS A DEED.

SIGNED SEALED AND DELIVERED by the said YVONNE JOYCE PROBERT(signed) in the presence of:

(signed)''

7. When the Deed was presented for stamping, the Commissioner took the view that the instrument of disclaimer constituted a conveyance which operated as a voluntary disposition inter vivos of the half interest of Yvonne Joyce Probert in the residuary estate of the testator.

8. Accordingly, on 2 June 1997, he assessed duty on the Deed in the sum of $7,758, being the ad valorem rate calculated on $223,120.16.

9. Yvonne Joyce Probert, by her solicitor, duly lodged a notice of objection with the Treasurer, against that assessment, on 12 June 1997. The specific grounds of the objection were stated to be:-

(1) That the relevant instrument operated to disclaim or reject the benefit conferred by the Will of the testator - it operated by way of avoidance and not disposition; and
(2) That the Deed only attracted stamp duty in the sum of $10, being the rate applicable to a deed of a kind not otherwise specified in the Schedule to the Stamp Duties Act 1923 (``the Act'').

10. The Treasurer disallowed the objection. He took the view that the relevant instrument was not ``a true disclaimer'', but, in fact, constituted ``a surrender, release or avoidance''. As such, it operated as a conveyance falling within the ambit of s 71 of the Act.

11. This view was said, in the letter of disallowance, to have been founded on the proposition that administration of the estate was complete when the amount due to the residuary beneficiaries was ascertained. This, it was contended, occurred on 12 May 1997, when the executrix's oath was sworn, with its annexed Statement of assets and Liabilities. At that point, the Treasurer argued, ``an ascertainable interest in property'' became vested in each residuary beneficiary.

12. The present appeal sought to challenge that approach. It essentially promotes the stance expressed in the original objection to the Treasurer.

13. As I understand the competing submissions of counsel for the parties, it is not really in dispute that, if it could properly be said that the estate of the testator had been administered as at 12 May 1997, then ad valorem duty would clearly have been payable on the relevant instrument. The net residue actually payable to the beneficiaries would, specifically, have been ascertained, the beneficiary would have acquired a vested equitable interest in it and payment of it could have been demanded.

14. However, it is contended by Mr Morcombe, of counsel for the appellant, that it simply cannot be said that the estate of the testator had been administered as at 12 May 1997. Thus there was no ascertained interest of either residuary beneficiary under the Will, in the relevant legal sense.

15. It must firmly be borne in mind that, as at 12 May 1997, no grant of Probate of the Will had been made. All that then occurred was that an executor's oath, annexing a schedule of assets and some liabilities, was sworn - whether before or after the actual execution of the Deed does not presently appear.

16. The practical significance of an actual grant of probate is to be derived from sections 43 and 44 of the Administration and Probate Act 1919. The reason why assets of substance cannot normally be dealt with by an appointed executor or executrix is that, absent a formal grant of probate, a proper discharge cannot be given in relation to a proposed dealing, by that person, with an estate asset, other than pursuant to s 72 of that Act (which is inapplicable to the

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facts of this case). Of course, not only must the grant be produced as a basis for obtaining such a discharge, but so also must there be a Registrar's Certificate of the disclosure of the relevant asset in the schedule to the oath to lead to the grant.

17. There are, of course, other practical problems of proving title to act, unless and until a grant is procured. (See
Meyappa Chetty v Supramanian Chetty [1916] 1 AC 603 at 608.)

18. In the case of
Commissioner of Stamp Duties (Queensland) v High Duncan Livingston [ 1965] AC 694 the Privy Council re-affirmed the well settled principle that a residuary beneficiary under a Will does not acquire any beneficial interest in the specific assets in the hands of an executor during the course of administration. As their Lordships put it:-

``The assets as a whole were in the hands of the executor, his property; and until administration was complete no one was in a position to say what items of property would need to be realized for the purposes of that administration or of what the residue, when ascertained, would consist or what its value would be.''

19. Their Lordships considered dicta contained in various cases which suggested the existence of some type of direct equitable ``interest'' on the part of residuary beneficiaries in assets falling into residue, but expressly rejected them as contrary to well settled principle.

20. They expressly approved what fell from Viscount Cave in
Dr Barnado's Homes National Incorporated Association v Commissioner for Special Purposes of the Income Tax Act [1921] 2 AC 1, when he said:-

``When the personal estate of a testator has been fully administered by his executors and the net residue ascertained, the residuary legatee is entitled to have the residue, as so ascertained, with any accrued income, transferred and paid to him; but until that time he has no property in any specific investment forming part of the estate or in the income from any such investment, and both corpus and income are the property of the executors and are applicable by them as a mixed fund for the purposes of administration.''

(See also the discussion of Buckley J in
Re Leigh's Will Trusts, Handyside & Anor v Durbridge & Ors [1970] Ch 277.)

21. As Buckley J pointed out in the lastmentioned case, a beneficiary may have an interest in residue which is transmissible or disposable, but, at best, it consists only of a chose in action comprising ``a right to require the deceased's estate to be duly administered'', so as to protect those rights to which such person ``hopes to become entitled in possession in the due course of the administration of the deceased's estate''.

22. The rationale of the foregoing authorities really lies in the fundamental distinction between the executorial office and that of a trustee.

23. The function of an executor or executrix is to get in the estate and to clear it of its debts, duties and testamentary expenses. When those liabilities have been satisfied, he or she ceases to hold the estate as personal representative and becomes possessed of it as trustee, at least in the case of assets other than realty. (In
Re Ponder, Ponder v Ponder [1921] 2 Ch 59,
Re Cockburn's Will Trusts, Cockburn v Lewis [ 1957] Ch 438,
Re Real (Deceased), McDowell v Real (1914) 33 NZLR 1342.) The distinction to be drawn between the two offices arises at the point when the executor or executrix becomes functus officio as personal representative. It is only when the office changes from that of personal representative to that of trustee that the precise, beneficial, equitable interest of a residuary beneficiary becomes vested, quantifiable, and identifiable.

24. In the instant case the administration of the estate of the testator had not only not been completed, it had, in both the legal and practical senses, not even commenced.

25. It is trite to say that, until the Will of the testator had been admitted to Probate, the nominated executrix was not even in a position, in practical terms, to get in the assets of the estate, let alone administer them in terms of the Will.

26. What the respondent purported to do was to levy ad valorem duty on the whole of the net estate as estimated for the purpose of probate fees, arrived at after deducting only funeral expenses and some outstanding chemist's expenses.

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27. The figure adopted could not, possibly, accurately reflect any precise interest which each residuary beneficiary would take, because it failed to take into account the pecuniary legacy to be paid, probate fees, any residual income tax credit or debit, and the amount of then unascertained testamentary or other expenses associated with the administration of the estate. Nor did the figures declared reflect the precise asset amounts which would ultimately be distributable, having regard to accruing interest entitlements.

28. Such a situation simply exemplifies the validity of the rationale expressed by the Privy Council, which has recently been reiterated by the High Court in
Official Receiver in Bankruptcy v Schultz & Anor (1990) 170 CLR 306. (See also
Smith v Layh & Ors (1953) 90 CLR 102 at 108-109.)

29. On the basis of the foregoing authorities Mr Morcombe submits that, there being no completed administration of the estate of the testator at the time of execution of the Deed (and thus no specifically ascertained, or ascertainable, precise amount then due to either residuary beneficiary), the instrument operated as a true disclaimer; and not as a surrender, avoidance, or release of a relevant vested interest - the effect of which was to transfer a beneficial interest in property to the remaining residuary beneficiary. It was an instrument, Mr Morcombe said, which operated ``by way of avoidance, and not by way of disposition'', as envisaged by s 71(3) of the Act (cf
Re Paradise Motor Co Ltd [1968] 2 All ER 625 at 632).

30. It seems to me that, in absence of any specific legislative provision to the contrary, the authorities quite clearly establish the proposition that a formal disclaimer of a benefit conferred by a Will does not act positively as an assignment or disposition of property. The whole concept of such an act in relation to residue, at least if it occurs before personal representatives become functus officio, is that it acts negatively by preventing the relevant property vesting at all. (See the reasoning in
Townson v Tickell & Anor (1819) 3 B & Ald 31,
Re Scott (deceased), Widdows v Friends of the Clergy Corporation & Ors [1975] 2 All ER 1033 at 1045.) As Legoe J pointed out in
In the Estate of Simmons (decd) (1990) 56 SASR 1 at 5, until a disclaimer, a beneficiary has the right to require administration of the relevant trust according to its terms. Until the executorial function is complete the nominated beneficiary is free to choose whether to avail himself or herself of the bequest or to disclaim it. If there is a disclaimer then the gift is avoided and, with it, the concomitant right.

31. I did not take Ms Panagiotidis, of counsel for the Commissioner, really to dispute the concept discussed in Commissioner of Stamp Duties (Queensland) v Livingston (supra). Rather she sought to persist in the contention that the estate had been ascertained by no later than 12 May 1997 and that the relevant half interest in residue ``had already vested in'' Ms Probert. Accordingly, the Deed was a disposition and not a true disclaimer.

32. All that need be said in that regard is that the summation of the situation, as I have above set it forth, irresistibly refutes the factual situation asserted. The interest in residue had not (and could not have) been ascertained and vested in Ms Probert as of 12 May 1997. There was then no vested interest in any specific property which could be the subject of a conveyance or transfer. The personal representative was not functus officio and the precise net residuary estate had not been determined. At best Ms Probert had a chose in action of the type adverted to by the Privy Council, which she was entitled to enforce against the executrix, if and when the latter took a grant of probate.

33. This contention must be rejected.

34. However, that is not the end of the matter.

35. It was argued on behalf of the Commissioner that, in any event, the instrument in question constituted a ``conveyance'', within the meaning ascribed to that expression by s 60 of the Act. It was, Ms Panagiotidis said, an ``assurance or instrument of any kind, by which or by virtue of which or by the operation of which... real or personal property or any estate or interest in such property is assured to, or vested in, any person...''. Accordingly, the instrument, not being a conveyance on sale, was, nevertheless a conveyance deemed, by s 71(3)(b), to constitute a voluntary disposition inter vivos. It follows, it was submitted, that duty was payable at the ad valorem rate, regardless of the stage to which administration of the estate of the testator may have proceeded.

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36. The validity of that contention depends entirely on whether or not it can validly be affirmed that the Deed was an instrument ``by which'' or ``by virtue of which'' or ``by the operation of which'' any real or personal property, or estate or interest in such property, was assured to or vested in, any person.

37. In my view the Commissioner's argument in this regard cannot be sustained. The sole effect of the disclaimer, as and when it took effect, was to divest the disclaimor of the right to call upon the executor, upon assuming the mantle of trustee, to execute the trust in her favour in accordance with the Will of the testator. There was no assignment in favour of anyone, because the effect of the disclaimer was to avoid any potential vesting of benefit in the disclaimor as if such a benefit never existed. The disclaimer, as and when it occurred, did not (and could not) vest any property or any interest in property in any other person. You cannot assure to or vest in someone else that which has never vested in you. The mere fact that, following the disclaimer, Ms Hannaford became solely entitled to the residuary estate, when that estate was ascertained at some future date, was no more than an indirect legal incident of the disclaimer. The disclaimer itself did not effect the assuring to or vesting of any property, as such, in anyone.

38. The whole notion of a conveyance, which is reflected in the provisions of s 71(3)(b), envisages an act whereby one party executes an instrument which directly or indirectly vests real or personal property, in which the conveying party has a legal or equitable interest, to another. The Deed in the instant case did not do that. As I have said, it simply prevented a potential equitable interest in net residue, when ultimately ascertained, vesting in the appellant, as if she had never been named as a beneficiary. What repercussive effect flowed from that was incidental. There was no conveyance of property in the common law or statutory sense.

39. In arriving at that conclusion I by no means ignore the various cases listed on the respondent's list of authorities. However, I do not consider them of real assistance for present purposes. For example, In
Re Stratton's Disclaimer; Stratton & Ors v Inland Revenue Commissioners [1958] Ch 42 was the product of a quite different legislative context, as were other cases cited.

40. The appeal must be allowed and the assessment made set aside. I will hear counsel as to the precise form of order which ought to be made.

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