Forsyth v Commissioner of Stamp Duties [1966] HCA 5; (1966) 114 CLR 194 (25 February 1966)

HIGH COURT OF AUSTRALIA

FORSYTH v. COMMISSIONER OF STAMP DUTIES [1966] HCA 5; (1966) 114 CLR 194

Constitutional Law (Cth) - Stamp Duties (N.S.W.)

High Court of Australia
Kitto(1), Taylor(2), Menzies(3), Windeyer(4) and Owen(5) JJ.

CATCHWORDS

Constitutional Law (Cth) - Inconsistency between Commonwealth and State laws - Commonwealth law excluding from estate of deceased life assured proceeds of policies on his life for benefit of wife or members of family - State law including in dutiable estate of life assured proceeds of life policies payable to any person where premiums paid by life assured - No inconsistency - The Constitution (63 & 64 Vict. c. 12), s. 109 - Life Insurance Act 1945-1961 (Cth), s. 94 (1)* - Stamp Duties Acts, 1920-1959 (N.S.W.), s. 102 (2) (h)**.

Stamp Duties (N.S.W.) - Life assured - Dutiable estate - Life policy - Loan by insurance company to life assured - Proceeds of policy charged with repayment - Agreement that loan may be repaid by deduction from any payment due by company on termination of policy contract - What included in dutiable estate - Total sum due under policy or proceeds after deduction of balance due on loan - Stamp Duties Acts, 1920-1959 (N.S.W.), s. 102 (2) (h)**.

HEARING

Sydney, 1965, November 22, 23; 1966, February 25. 25:2:1966
APPEAL from the Supreme Court of New South Wales.

DECISION

1966, February 25.
The following written judgments were delivered: -
KITTO J. This appeal raises two questions. The first is whether the State is invalidated by s. 109 of the Constitution of the Commonwealth as being inconsistent with a law of the Commonwealth namely the provision contained in s. 94 of the Life Insurance Act 1945-1961 (Cth). The provision made by the Commonwealth enactment, so far as material, is that, subject to the Bankruptcy Act, a policy effected by any man upon his own life, and expressed to be for the benefit of his wife, or of his children, or of his wife and children, or any of them, shall create a trust in favour of the objects named in the policy, and the moneys payable under any such policy shall not, so long as any object of the trust remains unperformed, form part of the estate of the person whose life is insured, or be subject to his debts. (at p201)

2. The State law referred to is one of the provisions by which s. 102 of the Stamp Duties Acts determines the composition of the "dutiable estate" of a deceased person (see s. 104) "for the purposes of the assessment and payment of death duty." The "dutiable estate" is made for these purposes to include and consist of certain classes of property described in two paragraphs. The first paragraph describes all the property of the deceased, with the exception of personal property outside New South Wales if the deceased was not domiciled in the State. The second paragraph describes in lettered sub-paragraphs certain classes of property (and the value of certain other classes of property) which did not belong to the deceased at his death but with which he had had some specified form of connexion in his lifetime. Among the sub-paragraphs of par. (2) is sub-par. (h), which comprises any money payable to any person under a policy of assurance on the life of the deceased where the whole of the premiums have been paid by the deceased. In the present case the whole of the premiums were paid by the deceased. (at p202)

3. Section 102 does not purport to affect the composition of the actual estate. Its operation is made clear by s. 105 as read with ss. 101 to 101E inclusive. It is to prescribe the items the respective values of which are to be added together so as to make a total sum, which total sum, after authorized allowances have been made, is to stand as the computation of "the final balance of the estate of the deceased" "as determined in accordance with this Act". It is upon the final balance as so determined that death duty at the rates which the Act prescribes "shall be assessed and paid". (at p202)

4. Thus it is no part of the function of s. 102 to alter the law of property in any respect. True, the items of property which the section requires to be included in the "dutiable estate" are charged with the duty by s. 115 (2), and may be affected by steps taken under s. 115 (3) or s. 120 (5), (6) and (7); but the Act does not make them part of the estate of the deceased. In particular, s. 102 (2) neither vests in the legal personal representative of the deceased any property which is not otherwise vested in them nor makes any such property available for the satisfaction of his debts or funeral expenses or of his testamentary expenses generally. (at p202)

5. To recognize that s. 102 (2) (h) merely brings the policy moneys it describes into the computation of the final balance upon which death duty is to be assessed and paid is to see at once that its operation according to its terms is completely consistent with the operation of the law of the Commonwealth contained in s. 94 of the Life Insurance Act. The provision made by s. 94 affects the beneficial ownership of a policy to which it applies and of the moneys payable thereunder. It creates beneficial interests in favour of the persons expressed to be the beneficiaries, and it expressly enacts the logically necessary consequence, namely that to the extent of the interests thus created the policy and its proceeds form no part of the estate to be administered by the legal personal representatives of the person who, by effecting the policy, constituted the trust. It explicitly provides that the policy moneys are not to be subject to that person's debts. The State provision proceeds on the footing that this is the law. It merely charges the policy moneys (together with all the other property it mentions) with a duty computed on a statutory hypothesis, acknowledged by the statute itself to be contrary to the fact, that those moneys form part of the deceased's estate; and though s. 114 of the State Act makes the duty a debt payable by the administrator out of the estate of the deceased in the same manner as the debts of the deceased it does not deny, indeed it impliedly admits, that it is not such a debt. (at p203)

6. In Commissioner for Probate Duties (Vict.) v. Mitchell [1960] HCA 54; (1960) 105 CLR 126, at pp 142, 143 , in which s. 116 of the Administration and Probate Act 1958 (Vict.) (which resembles s. 102 of the New South Wales Act) had to be placed alongside s. 94 of the Life Insurance Act, Fullagar J. suggested that a constitutional question of inconsistency between the provisions might require serious consideration. His Honour was not at all deceived by the use of the word "estate" in the different senses that it has in the two provisions. Clearly enough he saw that the question of inconsistency had to be given the same answer as if the State Act had used some expression such as "dutiable list" instead of "estate". His suggestion was based upon the undoubted fact that the object of s. 94 was to encourage life insurance and, subject to the bankruptcy laws, to enable husbands and wives to make some safe and sure provision for one another and for their children. It is indeed a possible view that the operation of s. 102 (2) (h) is opposed to the policy behind s. 94, but I am unable to see that it either purports to detract from the full legal operation of s. 94 or trenches upon a field for which s. 94 shows an intention of laying down the whole law. Fullagar J., I take it, was not suggesting actual contrariety between the two provisions, but was raising a question of inconsistency according to the test explained by Dixon J. in Ex parte McLean [1930] HCA 12; (1930) 43 CLR 472, at p 483 and approved by the Privy Council in O'Sullivan v. Noarlunga Meat Ltd. (1957) AC 1, at p 24; [1956] UKPCHCA 4; (1956) 95 CLR 177, at p 182 . The reason why I find myself unable to act upon his Honour's suggestion is that with the fullest recognition of the general reasons of policy which account for the enactment of s. 94 I yet do not see in the section an intention to lay down the law upon any wider subject than the beneficial ownership of the policy and the moneys it produces, and their availability for satisfaction of the proponent's debts. It may be thought that if this be so the section travels only part of the way towards complete fulfilment of the underlying policy, for it leaves room for a State Act to throw upon the policy moneys the burden of a tax imposed by reason of the death of the proponent, although acknowledging that they are not assets of his estate; but even if this be conceded it remains impossible, I think, to say that the test of inconsistency in operation is satisfied. Menzies J. in the same case [1960] HCA 54; (1960) 105 CLR 126, at pp 144, 145 expressed the opinion that no inconsistency existed between the two provisions there in question, and I reach the same conclusion in relation to the provisions we have here to consider. (at p204)

7. The second question in the appeal concerns the manner in which s. 102 (2) (h) of the Stamp Duties Acts applies to this case in view of certain special facts. The money to be included in the dutiable estate under sub-par. (h) is payable under a policy which was issued in 1920 by the Mutual Life and Citizens Assurance Company Ltd. The deceased in 1959, some three years before his death, borrowed from the Company, necessarily as trustee of the policy, a sum of 3,000 pounds at interest. The receipt which he signed set out the terms of the loan contract. It contained the following passage: "In consideration thereof (i.e. of the granting of the loan) I hereby deposit such policy with the Company. And I charge the policy and the moneys payable thereunder and its bonus additions (if any) with the repayment of such loan and agree that the same shall be repaid by deduction from any payment due by the Company on the termination of the policy contract . . . ". The deceased was entitled by the terms of the policy to obtain such a loan, for by cl. 8 (e) the Company undertook and contracted that after the policy should have been three full years in force the assured should be entitled to a loan from the Company of an amount not exceeding ninety per cent of the cash surrender value upon his depositing the policy and executing a mortgage thereof in such form and at such rate of interest as the directors should approve. At his death there was owing upon the security of the policy the sum of 3,220 pounds 2s. 4d. The amount payable under the policy according to its own terms, considered by themselves, was 9,951 pounds 8s. 0d. less 203 pounds 16s. 9d. for arrears of premiums and interest thereon, that is to say a net sum of 9,747 pounds 11s. 3d. The question is whether the whole of this last-mentioned sum, or only the balance after deducting the loan moneys and interest therefrom, is the "money payable to any person under a policy of assurance" within the meaning of s. 102 (2) (h). (at p204)

8. In the Supreme Court, Walsh J., in a dissenting judgment, concluded that only the balance fell within the description provided by these words, being of the opinion that the contract of loan had the effect of altering the obligation of the Company under the policy so that only the balance after deduction of the amount of the loan and interest became "payable . . . under a policy of assurance". To attribute that effect to the loan contact, however, would be to disregard the expressed intention of the parties. The terms of the contract, far from treating the Company's obligation under the policy as thereby diminished, referred to the "moneys payable thereunder" as the subject of the charge which the deceased was creating in favour of the Company. By so doing it plainly showed the intention to be that the full amount which according to the original terms of the policy would become payable at its maturity should then become payable, but should be paid as to part by means of a deduction in discharge of the loan money and interest and as to the balance by payment in the ordinary way. The agreement for deduction of the policy moneys was an agreement for a set-off, and the operation of an agreement for a set-off is not to vary the contract under which the debt arises from which the set-off is to be made, but is to bring about a payment of that debt pro tanto Lord Campbell C.J. in Livingstone v. Whiting [1850] EngR 661; (1850) 15 QB 722 (117 ER 632) said, "The way in which an agreement to set one debt against another of equal amount, and discharge both, proves a plea of payment is this. If the parties met, and one of them actually paid the other in coin, and the other handed back the same identical coin in payment of the gross debt, both would be paid. When the parties agree to consider both debts discharged without actual payment it has the same effect, because in contemplation of law a pecuniary transaction is supposed to have taken place by which each debt was then paid (1850) 15 QB, at pp 723, 724 (117 ER, at pp 632, 633) ." The general principle received a special and well-known application in Spargo's Case (1873) 8 Ch App 407 , and was recognized in this Court in Commissioner of Stamp Duties (N.S.W.) v. Perpetual Trustee Co. Ltd. (Saxton's Case) [1929] HCA 27; (1929) 43 CLR 247, at pp 263, 264 . The case of In re Hodge's Policy; Hodge v. Inland Revenue Commissioners (1957) Ch 339; aff (1958) Ch 239 provides another illustration of the same principle. In my opinion the whole of the 9,747 pounds 11s. 3d. is to be deemed part of the estate of the deceased for duty purposes under s. 102 (2) (h). (at p205)

9. Accordingly I would affirm the decision of the Supreme Court on both questions and dismiss the appeal. (at p205)

TAYLOR J. By s. 102 of the Stamp Duties Acts, 1920-1959 (N.S.W.) it is provided that for the purposes of the assessment and payment of death duty the estate of a deceased person shall be deemed to include and consist of the following classes of property. Thereafter, in sub-s. (1) of the section, there are words descriptive of the actual property of a deceased person and this is followed, in sub-s. (2), by a series of paragraphs descriptive of what has come to be known as the "notional" estate of such a person. Included in these paragraphs is par. (h) which specifies: "Any money payable to any person under a policy of assurance on the life of the deceased where the whole of the premiums have been paid by the deceased or a part of that money in proportion to the premiums paid by him where part of the premiums have been paid by some other person". Under the Act death duty is to be assessed and paid upon the final balance of the estate as determined in accordance with the Act (s. 101), and the final balance of the estate is to be computed "as being the total value of his dutiable estate after making such allowances as are hereinafter authorized in respect of the debts of the deceased". It thus appears that for the assessment and payment of death duty there is to be included in the estate of the deceased certain items of property which were not, in effect, the property of the deceased at the time of his death but which are deemed to form part of his estate for this purpose. (at p206)

2. Immediately before the death of the deceased there was in force a policy of life assurance under which certain moneys became payable upon his death. The amount payable under this policy was expressed to be for the absolute benefit of his wife "should she become the Assured's widow, failing which for the absolute benefit of such of the children of the Assured as shall be alive when the Policy Moneys become payable". The testator's wife predeceased him and one child survived him. Since the deceased had paid all the premiums under the policy the amount payable thereunder was caught by the provisions of par. (h) of s. 102 (2). (at p206)

3. The contention of the appellant is, however, that the provisions of this paragraph are invalid pursuant to s. 109 of the Constitution because they are inconsistent with the provisions of s. 94 (1) of the Life Insurance Act 1945-1961 (Cth). This provision is in the following terms: "Subject to the Bankruptcy Act 1924-1933, a policy effected (whether before or after the commencement of this Act) by any man upon his own life, and expressed to be for the benefit of his wife, or of his children, or of his wife and children, or any of them, or by any woman upon her own life, and expressed to be for the benefit of her husband, or of her children, or of her husband and children, or any of them, shall create a trust in favour of the objects named in the policy, and the moneys payable under any such policy shall not, so long as any object of the trust remains unperformed, form part of the estate of the person whose life is insured, or be subject to his or her debts". (at p207)

4. A like question has received some attention in Commissioner for Probate Duties (Vict.) v. Mitchell [1960] HCA 54; (1960) 105 CLR 126 where it seems to have been briefly argued but where it was unnecessary to decide it. However, Fullagar J. adverted to the point and said : "The view which I have expressed above is based simply on construction of the two relevant statutes, and on that view no constitutional question arises. But, if I were wrong in that view, and if the State Act, on its true construction, did bring the proceeds of the policy into charge for purposes of death duty, I think that a serious constitutional question would arise. The Commonwealth Act says that the moneys payable under the policy 'shall not . . . form part of the estate of the person whose life is insured or be subject to his or her debts'. The State Act, if construed otherwise than as I have construed it, says that those moneys 'shall be deemed to form part of the estate of' the person whose life is insured. I prefer to express no opinion on the question now, but I am not satisfied that an argument based on s. 109 is answered by saying that duty is imposed by s. 116 of the State Act on a 'final balance' and that the policy moneys are merely an item to be taken into account in calculating the final balance. It is to be remembered that, as has been said more than once, the object of what is now s. 94 of the Commonwealth Act was to encourage life insurance, and, subject to the laws relating to bankruptcy and insolvency, to enable husbands and wives to make some safe and sure provision for one another and for their children" (1960) 105 CLR, at pp 142, 143 . Menzies J., on the other hand, said : "It is convenient in the first place to consider an argument advanced by the respondents which the learned Chief Justice did not find it necessary to consider but which, if accepted, would be decisive in the respondents' favour. It is that if the Administration and Probate Act does upon its proper construction require the policy moneys to be treated as forming part of the estate of the deceased for the purposes of Pt. V of that Act, it is inconsistent with s. 94 of the Life Insurance Act (Cth) and is to that extent invalid. That section provides that a policy effected (whether before or after the commencement of the Act) by any man upon his own life, and expressed to be for the benefit of his wife, shall create a trust in favour of his wife, and 'the moneys payable under any such policy shall not, so long as any object of the trust remains unperformed, form part of the estate of the person whose life is insured, or be subject to his . . . debts'. This provision in terms applies to the policy here in question, but I do not regard it as inconsistent therewith for a law of Victoria to provide that such policy moneys shall be deemed to form part of the estate of the deceased for the purpose of assessing the probate duty to be paid by the executors upon the final balance of the estate (s. 116). Such 'final balance' means 'the total value of all property which is or is deemed to form part of the estate less the total value of all items which are allowed as deductions'. Any duty payable 'shall be deemed to be a debt of the testator . . . to Her Majesty and shall be paid by any executor . . . out of the estate of the testator . . . after payment of the testamentary and funeral expenses and in priority to all debts of the testator . . .' (s. 120). The provisions to which I have referred do not seem to me to interfere with the performance of this trust in favour of the wife or to constitute the policy moneys assets of the estate, or to subject them to the debts of the deceased. They do no more than deal with the method by which duty payable out of the estate, but not the policy moneys, is to be calculated" (1960) 105 CLR, at pp 144, 145 . (at p208)

5. For my own part I take the view that there is no inconsistency between s. 94 and s. 102 (2) (h) and I rest this conclusion on a broad basis. It is true that s. 94 of the Commonwealth Act provides that a policy of the character in question in this case "shall create a trust in favour of the objects named in the policy, and the moneys payable under any such policy shall not . . . form part of the estate of the person whose life is insured, or be subject to his or her debts". But there is nothing in the section to impede the legislature of a State from imposing a death duty or a succession duty upon the beneficiaries under such a policy where the deceased has chosen this form of transaction for the purpose of conferring a benefit or benefits on his death upon some other person or persons. Legislation to this effect would not convert the policy moneys into part of the "estate" of the deceased within the meaning of s. 94 nor would it subject the policy moneys to the deceased's debts. The section is in a well-known form (cf. Married Women's Property Act, 1882, s. 11, and Life Fire and Marine Insurance Act, 1902 (N.S.W.), s. 8) and it was devised to overcome the difficulty not infrequently experienced in determining whether the nomination of a person for whose benefit the policy was expressed to be taken out amounted to the creation of a trust (cf. e.g. In re Engelbach's Estate (1924) 2 Ch 348 ; In re Sinclair's Life Policy (1938) 1 Ch 799 ; In re Gordon (1940) 1 Ch 851 ; and In re Webb; Barclays Bank Ltd. v. Webb (1941) 1 Ch 225 ). The effect of the section is to invest the holding of a policy of the nature in question here with the character of a trust, the interests of the beneficiaries being, in the present case, contingent upon their surviving the deceased. It thus operated to remove the policy, and in the events which happened, the moneys payable upon maturity, from the estate of the deceased and rendered them unavailable by any form of process to the creditors of the deceased. But the traditional words "shall create a trust in favour of the objects named . . . and the moneys payable under the policy shall not . . . form part of the estate of the person whose life is insured, or be subject to his or her debts" did not operate to do more than this. Certainly it was not devised to ensure that the beneficiaries under such a trust should be at liberty to succeed to their interests free from any liability to pay such impost as might be levied upon them in the nature of death, estate, or succession duties. Indeed the Estate Duty Assessment Act, by s. 8 (4) (f), for the purposes of the Act, itself, treats as part of the estate of a deceased person money payable to or to any person in trust for a specified class of persons under a policy of assurance on the life of the deceased where the whole of the premiums have been paid by or on behalf of the deceased, or, where part only of the premiums has been paid by or on behalf of the deceased, such portion of any money so payable as bears to the whole of that money the same proportion as the part of the premiums paid by or on behalf of the deceased bears to the total premiums paid, and it seems to me that the Parliament of the Commonwealth did not see anything in s. 94 inconsistent with this provision when it enacted the latter section. But, however this may be, Crisp J. in In re Perry (1963) 5 FLR 116 held that there was no inconsistency and that the earlier section was not impliedly repealed. I agree with this view. (at p209)

6. The argument which is addressed to us is largely based upon a dissection of the concluding words of s. 94. Once the section declared that a trust was created it was, it was asserted, unnecessary in order to remove the policy moneys from the reach of the creditors of the deceased to go further and enact that they should not form part of the estate of the person whose life is insured, or be subject to his or her debts. Therefore it was said that a more far-reaching effect was intended by these words. But the argument is, I think, without real substance; the form of the concluding words is traditional and they serve no purpose other than to make it clear beyond doubt that the policy moneys are not to form part of the estate of the deceased in the sense of being an asset in the administration of the deceased's estate and, therefore, not subject to his or her debts. (at p210)

7. Holding this view, as I do, concerning the meaning and effect of s. 94 I see no ground upon which it can be said to be in conflict with s. 102 (2) (h) of the Stamp Duties Act. That section does not constitute the policy moneys an asset in the deceased's estate. Nor does it render them subject to the debts of the deceased ; it merely deems them to be part of his estate for a very limited purpose, that is to say, the assessment and payment of duty upon the estate. The liability to duty does not constitute a debt of the deceased ; it becomes due and payable on the assessment thereof by the Commissioner or within six months from the death of the deceased and it constitutes a debt payable to His Majesty out of the estate of the deceased in the same manner as the debts of the deceased. Section 120, provides that where any property which is, or the value of which is, included in the dutiable estate of a deceased person is vested in any person other than the administrator the duty payable in respect thereof shall be paid by the persons entitled thereto according to the value of their respective interests therein, to the administrator. I see nothing inconsistent in this provision ; it is simply a means of ensuring that, in a case such as the present, liability for death duty in so far as it is referable to the policy moneys, will fall ultimately on the recipient. There may, however, be some doubt as to the validity of ss. 114 and 115 (2) in so far as those sections may operate to subject the policy moneys to a liability to meet death duty charged on other parts of the estate ; to this extent the Act may, in strictness, treat the policy moneys as part of the estate of the deceased. But to resolve this particular question would not advance the appellant's case for these provisions are clearly severable from the other provisions of the Act. In the result I agree with the Full Court that the first question should be answered in the affirmative. (at p210)

8. The second question arises because during his lifetime the insurance company, at the request of the deceased, advanced the sum of 3,000 pounds to the ultimate beneficiary upon the security of the policy. By the terms of the arrangements then made, which are fully set out in the case stated, the deceased agreed that the advance "should be repaid by deduction from any payment due by the company on the termination of the policy contract or on demand whichever first happened". No demand was, apparently, made and on the death of the deceased the state of the accounts showed that "the amount payable under the policy on death" was 9,747 pounds whilst the amount owing to the company in respect of its advance was 3,220 pounds 2s. 4d. The question is whether, as that expression is used in s. 102 (2) (h), the "money payable" under the policy was 9,747 pounds or that amount less 3,220 pounds. Upon this point the Full Court divided, Sugerman and Moffitt JJ. holding that the "money payable" was the larger amount whilst Walsh J. considered that it was the smaller amount only. (at p211)

9. The respective arguments which were advanced are fully set out and dealt with in their Honours' reasons and I find myself in agreement with the majority, reinforced as it is, by the decision in In re Hodge's Policy (1957) 1 Ch 339 ; (1958) 1 Ch 239 . In that case a loan from an insurance company was secured by a mortgageof one of its policies and upon the death of the assured it had not been repaid. Thereupon the company paid only the difference between "the amount payable under the policy" and the amount outstanding on the loan, but Harman J., and later the Court of Appeal, held that the former amount constituted "money received under a policy of insurance" within the meaning of s. 11 (1) of the Customs and Inland Revenue Act, 1899. It is true that there does not seem to have been in that case any express agreement that the loan should, in the events that happened, "be repaid by deduction from any payment due by the company on the termination of the policy". But this is not, in my view, a distinction of any significance for, in the present case, the use of that expression in no way operated to alter the obligations created by the policy. On the other hand, the words of s. 102 (2) (h) - "money payable" and not "money received" - make this a stronger case from the respondent's point of view than in In re Hodge's Policy (1957) 1 Ch 339 ; (1958) 1 Ch 239 . No doubt in some contexts the expression used in s. 102 (2) (h) - "money payable" - could be understood simply to mean the net amount which by reason of a subsequent arrangement the company was bound, actually, to pay over. But the language of the section is, I think, too clear to admit of this conclusion. The parties were, of course, free to make an arrangement which had the effect of altering the obligations of the company under the policy but, in my view, they did not do so and, in substance, the position remained the same as if a loan on the security of the policy had been obtained from a third party. In my view the reasons of the majority in the Full Court on this point were correct and the appeal should be dismissed. (at p211)

MENZIES J. In my opinion, the judgment of the Full Court was correct and this appeal should be dismissed. (at p212)

WINDEYER J. I agree that this appeal should be dismissed. I do not wish to add anything to what has already been said for that conclusion. (at p212)

OWEN J. For the reasons given by my brother Kitto I agree that the appeal should be dismissed. (at p212)

ORDER

Appeal dismissed with costs.