Cochrane v Federal Commissioner of Land Tax [1916] HCA 31; (1916) 21 CLR 422 (16 May 1916)

HIGH COURT OF AUSTRALIA

Cochrane Appellant; and The Federal Commissioner of Land Tax Respondent.

H C of A

16 May 1916

Griffith C.J., Barton, Isaacs, Gavan Duffy and Rich JJ.

Starke, for the appellant.

Mann, for the respondent.

Starke, in reply.

May 16

Griffith C.J.

The appellant in this case was the agent in Victoria for Mrs. Emma Brooks, a lady who lived in England up to the time of her death, and was the widow of the late Henry Brooks, who died in 1895. He left a will by which he devised land and other property in Australia to trustees upon various trusts. He gave his widow an annuity of £3,000 to be reduced to £1,000 in the event of her marrying again, which sums were by a codicil reduced to £2,000 and £500 respectively. He declared that these annuities should be "two several yearly rent-charges charged upon and issuing out of" certain specified freehold lands in Melbourne and all other lands of his, freehold or otherwise, in Victoria and elsewhere, and he gave his wife power by distress and entry to recover payment of the rent-charges whenever they might be in arrear for twenty-one days. He then proceeded to make large gifts, including legacies of £20,000 to each of his children. Finally, he gave the residue of his estate equally among his children.

In the events that have happened, the rents of the land charged with the annuity have not been sufficient to pay the annuity of £2,000, and the balance has been supplemented from other sources. The trustees of the will have been assessed for land tax according to the value of the land which they held as trustees, but it seems to have occurred to the Commissioner that as Mrs. Brooks was an absentee he might get a larger amount of tax in respect of the same land if he could make out that she was the owner of it, and so was taxable as a secondary taxpayer without the right to a deduction of £5,000. Accordingly he gave her, through her agent, a notice of assessment as owner of the testator's land. The notice of assessment sets out that she is charged as secondary taxpayer—credit, of course, being given for the amount of tax paid by the trustees.

The Commissioner rests his case primarily upon the contention that Mrs. Brooks was owner of the land by virtue of the rent-charges. It is clear that she was not the owner in any other sense. She was not the beneficial owner of the land under the will.

The first question asked is: Was Mrs. Brooks owner of the land within the meaning of the Land Tax Assessment Act 1910-1912? By the definition in sec. 3 the word "owner" includes, among others, every person who jointly or severally, whether at law or in equity "is entitled to receive, or in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise." How is it possible to say that Mrs. Brooks was entitled to receive the rents and profits of this land? Suppose the income from the land were double the amount of the rent-charge. No one could seriously put forward the theory that in that case she was entitled to receive the rents and profits. The fact that the rents are actually less than the annuity makes no difference. The amount of the rent actually received is wholly irrelevant to the amount of the annuity and vice versâ. If, for instance, there were a dozen annuitants each having a small rent-charge, could it be said that they were the joint owners of the land or joint owners with the devisees under the will, and so entitled to the receipt of the rents and profits? In my judgment the words "entitled to receive the rents and profits" mean entitled directly to receive all the rents and profits (not some of the rents and profits), that is, the reditus from the land; if the land is let, to receive payment of the rent; if it is occupied without lease, to receive compensation for such use and occupation. They do not, as contended by the Commissioner, include the case of a person who is merely entitled to receive a sum out of rents and profits received by another person.

Another way in which it is suggested that Mrs. Brooks may be held to be an owner within the Act is by saying that a rent-charge is a hereditament. But it is not every hereditament that is "land" within the meaning of the Act. If this argument were otherwise worthy of serious attention, it is excluded by sec. 32, which provides that "a mortgagee, or other person owning any estate or interest in land by way of security for money, shall not be liable to land tax in respect of that mortgage, estate, or interest." Rent-charges are, beyond doubt, interests in land which are held as security for money. It could not be made plainer than it is by this will that the annuities are first given, and that the rent-charges are merely given as security for them. This is further emphasized by the codicil.

For these reasons the first two questions should be answered in the negative. The third question has not been argued, and nothing need be said about it.

Barton J.

I agree.

Isaacs J.

I agree that the first two questions should be answered in favour of the appellant, but I do so entirely on sec. 32.

Mrs. Brooks is, under the will, the owner of a rent-charge. So much is conceded, and cannot be denied. By the express words of the will the testator said:—"I devise the same several sums of £3,000 and £1,000 to her as two several and I declare that the same several sums of £3,000 and £1,000 shall be two several yearly rent-charges charged upon and issuing out of my freehold lands and buildings in and near Elizabeth Street in the City of Melbourne" and wherever else he had realty. The definition of "owner" includes "every person who jointly or severally, whether at law or in equity ... is entitled to receive, or in receipt of, or if the land were let to a tenant would be entitled to receive, the rents and profits thereof, whether as beneficial owner, trustee, mortgagee in possession, or otherwise." Mrs. Brooks as the owner of a rent-charge would come within that definition. A rent-charge granted for life is a tenement, though not a hereditament (Preston on Estates, vol. i., p. 12). It is an interest in the land itself (per Lord Cottenham in Creed v. Creed[1]). She had, to the extent of her annuity in the form of a rent-charge, and excluding for the moment the notion of the rent-charge being a mere security, a right, in my opinion, to demand from the trustees who are the legal owners of the land sufficient of the rents and profits to satisfy her claim (see Burton on Real Property, 7th ed., p. 333; Vaizey on Settlements, vol. ii., pp. 931 and 933). She was in fact to that extent as between herself and the trustees, as I view the law, entitled to the rents and profits sufficient to satisfy that rent-charge upon the land, and had the power of distress and entry in case of arrears for twenty-one days—as to which see Sanders on Uses and Trusts, 5th ed., vol. ii., p. 125.

But sec. 32 provides that "a mortgagee, or other person owning any estate or interest in land by way of security for money, shall not be liable to land tax in respect of that mortgage, estate, or interest." The section contains a proviso to which it is immaterial to refer. The question to my mind is this: Did Mrs. Brooks own that interest in the land as security for money? Now, the will is worded very curiously. The testator undoubtedly declares that these annual sums given to his widow are given to her as "two several yearly rent-charges," and that they shall be "two several yearly rent-charges" charged upon the land. If those words stood alone I do not think there could be any answer. But the question arises whether the rent-charges come within sec. 32—in other words, whether, notwithstanding that declaration, they are held by way of security for money. As I view the matter, that involves this consideration: A thing cannot be security for itself; it must be security for something else. Unless I could find in the will, read as a whole, that the sums of money which are now £2,000 and £500 were given to Mrs. Brooks as personal annuities and that the rent-charges were created as security in order to see that she got those personal annuities, I should decide in favour of the Commissioner. But reading the will as a whole I see that the trustees have power to sell and that the proceeds are to be held "upon trust thereout"—that is, out of the whole proceeds of the estate—"to pay to and I devise and bequeath to my said wife Emma so long as she shall be my widow the annual sum of £3,000 to be paid to her by equal quarterly payments whereof the first shall be made at the expiration of three calendar months next after my death and to accrue and be deemed to accrue from day to day so that and to the intent that she shall be entitled thereto and to a proportionate part thereof to and inclusive of the last day of her widowhood." Then, in case she should marry after his death, he gave her an annuity of £1,000 in similar terms. So that primarily the gift is apparently a personal annuity. Then comes the creation of the rent-charge, as already quoted. The testator then creates a power of distress and entry, by which she undoubtedly is to have the right of taking the rents themselves in specie to the extent of her claim. He then directs the trustees to set apart and appropriate a fund to answer the annuities out of the residuary personal estate. But he adds the words "and to provide against the case of the same rents and profits not being punctually or fully paid or issuing." That, again, throws a little doubt upon the matter, as if he were providing for punctual payment of the rent-charges. But throughout the will whenever the testator refers to the annuities in connection with the charge on the land he calls them rent-charges, and whenever he refers to them apart from the land he calls them annuities, and in various places he calls them "annuities and rent-charges" and not "rent-charges" simply. Reading the will as a whole, as I have to do in order to arrive judicially at its meaning, the testator's constant reference to these sums as "annuities" when not connected with the land leads me to the belief that he intended them to be personal annuities and that the rent-charges were intended to be security for payment of those annuities. The charge being created as security for money, namely, the personal annuities, sec. 32 applies and relieves the rent-charges from liability to land tax. For that reason I agree that the first two questions should be answered in the negative.

Gavan Duffy J.

I agree with what has been said by the Chief Justice.

Rich J.

I also agree with the judgment of the learned Chief Justice.

Questions (a) and (b) answered in the negative.

Solicitors for the appellant, Malleson, Stewart, Stawell & Nankivell.

Solicitor for the respondent, Gordon H. Castle, Crown Solicitor for the Commonwealth.

[1] [1844] EngR 881; 11 Cl. & Fin., 491, at 510.