Lilly v West Australian Trustee Executor & Agency Co Ltd [1911] HCA 61; (1911) 13 CLR 416 (27 October 1911)

HIGH COURT OF AUSTRALIA

Mary Hannah Lilly Appellant; and The West Australian Trustee Executor and Agency Co. Ltd and Others Respondents.

Dame Catherine Anne Lee Steere Appellant; and The West Australian Trustee Executor and Agency Co. Ltd Respondents.

H C of A

27 October 1911

Griffith C.J., Barton and O'Connor JJ.

Pilkington K.C., and Boultbee, for the appellant, Mrs. Lilly.

Draper K.C., with him Hensman, for the respondent beneficiaries,

George Parker for the respondent trustees.

Pilkington K.C. in reply.

Pilkington K.C., and Stawell, for the appellant, Lady Steere.

Draper K.C., and Hensman, for parties other than Lady Steere.

George Parker, for the respondent company.

The judgment of the Court was delivered by

Oct 27

Griffith C.J.

The question for determination in these two appeals is how the duty payable under the Duties on Deceased Persons' Estates Act 1895 and the Administration Act 1903 is to be borne as between the takers of successive interests. Under the latter Act, which I will deal with first, it is provided that duty is to be paid upon the real and personal estate of every deceased person, according to the rates set forth in the Second Schedule to the Act. The rate of duty chargeable upon the estate varies according to its value, and there is a further differentiation according to the relationship of the beneficiary to the testator or intestate. The duty is to be paid by the executor or administrator before the grant of probate or administration is issued. The executor or administrator is to deduct from every devise, bequest, or legacy, and in the case of intestacy from each distributive share, an amount equal to the duty upon it; and in each case regard is to be had to the relationship of the beneficiary to the testator or intestate. The orders appealed from declare that "Each and every interest of the defendants should be charged with portion of the duty paid and that the above-named plaintiff" (the trustee) "should deduct from each of such interests an amount equal to the duty upon the same respectively."

I understand that the orders were made formally by Rooth J. in supposed obedience to a decision of the Full Court in the case of In re Ogilvie[1], decided in April of this year. That, like the present, was a case between tenant for life and remainderman, and annuitants. The learned Chief Justice is reported to have said[2]:—"I am of opinion, therefore, that this income for the life of Mrs. Birbeck is a property which is chargeable under the Administration Act with the payment of duty, and that Mrs. Birbeck should consequently pay or refund the duty which the executor paid. In the same way the annuity is a property chargeable with duty and the annuitant should refund the duty which has been paid by the executor." We are told that, in view of this decision, the orders under appeal are interpreted as meaning that the trustees are bound to require from the appellants the payment in cash of this amount of duty paid in respect of their life interests, that is, that the beneficiaries are to recoup to the estate the amount paid in duty. If that is what the orders mean, we think that they are wrong, for the beneficiaries took their interests already diminished by the duty, and cannot be called upon to refund what they have not received. The orders are, however, capable of another meaning.

Under these circumstances I will proceed to consider the proper construction of the Act on the question of how the burden of duty should be borne. I will read the material sections.

86.

Every executor and administrator shall pay to the Commissioner duty on the final balance of the real and personal estate of the deceased, according to the rates set forth in the Second Schedule: Provided that, in so far as beneficial interests pass to persons bonâ fide residents of and domiciled in Western Australia, and occupying towards the deceased the relationship set forth in the Third Schedule, duty shall be calculated so as to charge only one-half of the percentage upon the property so acquired by such persons.

87.

The duty payable under this Act shall be deemed a debt of the testator or intestate to His Majesty, and shall be a first charge upon the property derived from the deceased, and shall be paid by any executor or administrator out of the estate of the deceased after payment of the funeral and testamentary expenses, in priority to all other debts.

111.

Subject to any special provision by a testator for the payment of the duty imposed by this Act, every executor or administrator with the will annexed shall deduct from each and every devise, bequest, or legacy, and in every case of intestacy an administrator shall deduct from each distributive share, an amount equal to the duty upon the same respectively; ... In each case regard shall be had to the relationship of the beneficiary to the testator, intestate, settlor, or donor, as the case may be.

Now, the fact that the duty is differential according to the relationship of the beneficiary to the testator or intestate makes it necessary to value the interest of each beneficiary; for otherwise the amount payable to the Crown could not be ascertained. The sum of the duties payable in respect of the several interests is the duty payable under the Act. The amounts, then, to be deducted by the executor or administrator under sec. 111 are the same amounts which have been already ascertained and paid to the Crown. Where the gift is a straight out gift, e.g., a legacy of £1,000, there is no difficulty; the executor simply hands over to the legatee the thousand pounds less the duty upon it. The only difficulty arises in the case of successive estates or interests and of annuities. Sec. 111, as framed, primarily applies only to cases where, as I have said, the executor or administrator retains the duty out of the legacy, or, in the case of a gift of real estate, provides for payment by a charge upon it. Sec. 111 says nothing in express terms about successive interests or annuities. But in every case where such successive interests or annuities are given there must be trustees, and, if none are expressly appointed, the executor himself becomes a trustee for the purpose of carrying out the trusts arising under these dispositions. The executor, therefore, hands over to the trustee, or as the case may be retains in the character of trustee, the estate diminished by the duty, and that diminution is constructively made from each interest in its proper proportion; and in the administration of the estate regard would have to be had to this fact. If no more were said the general doctrines of equity would apply, and would secure that no beneficiary should bear more than his own burden. Consequently sec. 111 itself would impose upon the trustee, subject to the supervision of the Court, the duty of seeing that no beneficiary should bear more than his own share of the burden of the duty payable upon the whole estate. Sec. 112 of the Act of 1903, however, gives express directions to that effect.

It is as follows:—"Subject to any specific direction appearing in any will, deed of gift, or settlement to the contrary, every executor, administrator, or trustee shall adjust any duties, and the incidence of any duties payable or paid by him, so as to throw the burden thereof upon the respective properties on which the same shall be ultimately chargeable."

In our opinion all that would be implied by sec. 111, even without the express words of sec. 112. Sec. 112 also authorizes the Court to control the trustee in the discharge of his duty in that respect. We think the Court might have done so even without the express enactment.

The principal question in both of the present cases is between tenant for life and remainderman. In the second case, Lady Steere's case, there are also annuitants. I will deal first with the case of successive estates for life and in remainder. It is immaterial whether the subject-matter is a residuary estate or not. The effect of the section which I have read is that the amount of the estate of which the income is given to the tenant for life is reduced by the whole duty paid in respect of it. If the rates payable by the tenant for life and the remainderman are equal, as they are in both these cases, there is no difficulty. The result will be the same as if the duty were raised by mortgage of the estate; in that case the tenant for life would have to keep down the interest, and the amount of her income would be reduced pro tanto. But if the rate payable by the remainderman is greater than that payable by the tenant for life, this rule would throw part of the remainderman's burden on the tenant for life, which would not be in accordance with the express directions of secs. 111 and 112. The tenant for life would lose an income equivalent to the interest upon the difference between the rate payable in respect of his interest and the greater rate payable in respect of the interest of the remainderman, and would therefore be entitled to be recouped in some way, and to have a charge upon the corpus in respect of it. The benefit of the charge might be worked out in various ways, but as the question does not arise in either of these cases it is not necessary to say which would be the best way to work it out, or at what rate the interest should be calculated and charged on the difference.

I will deal now with the case of annuities. An annuity is a legacy in the view of a Court of Equity. For the purpose of ascertaining the duty payable in respect of it as a legacy, the value of the annuity must be calculated as at the date of the death of the testator, with the aid, of course, of any light thrown by subsequent events before the calculation is made. The duty so ascertained is to be deducted from the value, and the amount of the annuity itself will be reduced proportionately. For example, suppose there is an annuity of £100, the value of which at the death of the testator is £1,000, on which the duty is £50. The value of the gift is diminished by this amount, and the result is that the annuitant would be entitled only to an annuity of which the present value is £950 instead of £1,000, that is, £95 instead of £100, the other £5 falling into the corpus or income of the residue according to the terms of the will. In that way the person entitled to the residue would be exonerated from bearing a burden imposed upon the interest of the annuitant. In the case of a contingent deferred annuity, such as is given in one of these cases, the same principle can be applied; but it is not necessary to make any declaration on the point at present, as the event may never arise. The substantial result is that in Lilly's case the tenant for life is entitled to the income of the whole of the residuary estate, as reduced by the duty payable upon it under the Act.

Lady Steere's case depends upon the provisions of the Duties on Deceased Persons' Estates Act 1895, as to which it is only necessary to say that they are not distinguishable from the provisions of the Act of 1903, except that the former Act contains no express provisions in the terms of sec. 112 of the latter Act. But for the reasons which have been given the result is the same, these express provisions being implied by the doctrines of equity.

A further contention was set up, which, if it were correct, would save the necessity of expressing any opinion on the matters which have already been dealt with. Sec. 111 of the Administration Act says that its provisions are to take effect "subject to any special provision by a testator for the payment of the duty imposed by this Act"; while sec. 112 says that the duty to adjust is "subject to any specific direction appearing in any will ... to the contrary." In both these cases the testator gave the residue of his estate after payment of his debts, funeral and testamentary expenses. It is contended that the duty payable under the Acts is a testamentary expense, and that that is "a special provision" and "a specific direction" which excludes the operation of sec. 111. If that is so, no question arises as to the duty chargeable upon the several beneficial interests. On this point the judgment of Kekewich J. in In re Clemow; Yeo v. Clemow[3], was referred to. There are two answers to that contention, each of which appears to be conclusive. First of all, sec. 87 provides: (His Honor again read the section). The legislature, therefore, clearly distinguishes between the duty under the Act and testamentary expenses. The same words were used in the Act of 1895. Now when the legislature in an Act dealing with wills and duties which may be called succession duties uses the term "testamentary expenses" in one sense, it can hardly be contended with any hope of success that a testator is to be taken, on the authority of an English decision upon a different Statute, to have meant to use the words in a different sense from that in which the legislature has used them. The legislature did not use the term "testamentary expenses" as including the duty. Then an ingenious argument was put forward by Mr. Boultbee, that the testator gave his residue after payment of his debts, that the duty is deemed to be a debt of the testator, and that the testator consequently gave the residue after payment of it. But it is plain that when the legislature said that the duty should be paid in priority to all other debts, it referred to the debts of the testator incurred during his lifetime. Another answer is supplied by the words of secs. 111 and 112, "Subject to any special provision," and "subject to any specific direction." We think that these terms imply a distinct reference to the duty imposed by the Act; which is certainly not to be found in the words used.

Under the circumstances, whether the Orders appealed from are or are not capable of a construction consistent with the view which we take of the true meaning of the Act, it is desirable to vary them so as to lay down a clear rule which trustees can follow in the administration of estates. We think that the following declarations should be substituted:—

In Lilly's case—

(1)

That under the provisions of the Administration Act 1903 the interests of the beneficiaries under the will of the testator are severally charged with the duty paid in respect of them; and

(2)

That for the purpose of giving effect to such charge the residuary estate is to be deemed to be reduced by the total amount of the duty paid in respect thereof, and the tenant for life is entitled to the income of the residuary estate as so reduced.

In Lady Steere's case—

(1)

That under the provisions of the Duties on Deceased Persons' Estates Act the interest of the beneficiaries under the will of the testator are severally charged with the duty paid in respect of them; and that for the purpose of giving effect to such charge

(2)

The capital value of every legacy is to be deemed to be reduced by the amount of duty paid in respect thereof;

(3)

The residuary estate is to be deemed to be reduced by the total amount of the duty paid in respect thereof, and the tenant for life is entitled to the income of the residuary estate as so reduced.

Orders varied.

Solicitors, for the appellants, G. F. Boultbee; James & Darbyshire.

Solicitors, for the respondents, George Parker; Parker & Parker.

[1] 13 W.A.L.R., 97.

[2] 13 W.A.L.R., 97, at p. 100.

[3] (1900) 2 Ch., 182.