Public Trustee (NSW) v Federal Commissioner of Taxation [1934] HCA 10; (1934) 51 CLR 75 (14 May 1934)

The Public Trustee of New South Wales and Others Appellants; and The Federal Commissioner of Taxation Respondent.

William Paul Small by his will dated 11th June 1928 directed his trustees to stand possessed of one-half share of his residuary trust estate and the income derived therefrom on certain trusts. The question for our consideration is whether estate duty is assessable or payable under the Estate Duty Assessment Act 1914-1928 upon such one-half of the residuary estate, less one-tenth thereof in respect of which no duty is claimed. The solution of this question depends upon the interpretation of sec. 8 (5), which runs thus: "Estate duty shall not be assessed or payable upon so much of the estate as is devised or bequeathed or passes by gift inter vivos or settlement for religious, scientific, or public educational purposes in Australia or to a public hospital or public benevolent institution in Australia or to a fund established and maintained for the purpose of providing money for use for such institutions or for the relief of persons in necessitous circumstances in Australia." Much argument was addressed to us on two points, (1) whether the parties were bound by a prior decision of Long Innes J. as to the meaning of the relevant portions of the will, and (2) what was the true interpretation of the will if they were not so bound. I think it is unnecessary to determine either of these questions. Whether the meaning attributed to the relevant portions of the will in the judgment of Long Innes J. or that contended for by the appellants be adopted, the trust which it creates is either entirely different from, or much larger than, those which are protected by the sub-section. It is said that the will contains a devise or bequest to public benevolent institutions in Australia or to a fund established and maintained for the purpose of providing money for use for such institutions within the meaning of the sub-section, or, in the alternative, a devise or bequest for the relief of persons in necessitous circumstances in Australia within the meaning of the sub-section. In my opinion, the words of the sub-section extend only to devises and bequests of specific sums of money or other ascertained or defined portions of the estate to public benevolent institutions in Australia actually in existence, and to devises and bequests to a fund which has been established and is maintained for the purpose of providing money for one or other of two objects, namely, (1) for use for the prescribed institutions, and (2) for the relief of persons in necessitous circumstances in Australia. In my opinion, on any interpretation of the trust continued in this will it is not within the exemption created by the sub-section.

The answer to the question submitted to us should be: Yes, to the whole, less one-tenth, of the half of the residuary estate.

I have had the opportunity of reading the judgment of my brother Dixon and agree with it.

Case stated pursuant to the provisions of the Estate Duty Assessment Act 1914-1928. Estate duty is imposed upon the value of the estates of deceased persons dying after the commencement of the Act. But sec. 8 (5) provides: "Estate duty shall not be assessed or payable upon so much of the estate as is devised or bequeathed ... for religious, scientific, or public educational purposes in Australia or to a public hospital or public benevolent institution in Australia or to a fund established and maintained for the purpose of providing money for use for such institutions or for the relief of persons in necessitous circumstances in Australia."

William Paul Small died in June 1928, and by his will made the following bequest: "16. Subject to the directions hereinbefore given to my trustees with regard to the disposition of moneys and annuities out of my residuary trust estate I direct my trustees after making due provision for all outgoings hereinbefore provided for to divide my residuary trust estate into two equal shares and with regard to one of such shares I direct my trustees to stand possessed of the same and the income derived therefrom for charitable or benevolent objects benefiting in particular young children And I desire that my trustees shall confer with my wife during her lifetime from time to time as regards the distribution of income which is to be made between such charitable or benevolent institutions, and after her death shall as far as practicable respect her wishes and desires with regard to such institutions but as an indication to my trustees and without restricting my wife's discretion to nominate some one or more institution besides those hereinafter named to benefit in such manner in the residue I now indicate the following institutions as entitled to receive the income from one-half of my residuary estate viz.: the Burwood Children's Home, Weldon Street, Burwood, conducted by the Church of England, the Church of England Home for Children known as Havilah near Wahroonga and the Church of England Home for Boys at Carlingford and also the Church of England Home for Girls now situate at Glebe but shortly to be removed to Carlingford and any other homes for children founded by the Church of England having for its objects the care and control of children with liberty nevertheless if my wife shall so direct and require my trustees to admit another or other institutions benefiting young children to the list of such institutions to share in such one-half of the income of the residue of my estate Provided always that at least one-tenth of the income to be derived from such one-half residue shall at all times be divided equally by my trustees amongst the following institutions: the Home of Peace for the Dying, Addison Road, Petersham, and the Home for Incurables Ryde." In proceedings instituted by originating summons in the Supreme Court of New South Wales between the trustees of the will and various parties interested under this bequest, the Court declared: "That one-tenth of the one-half of the residuary estate of the testator in paragraph sixteen of the said will mentioned must be held by the trustees in trust for the two charities named in the said paragraph the Home of Peace for the Dying Addison Road Petersham and the Home for Incurables Ryde and that one-half of the remaining nine-tenths of the said moiety will go as on an intestacy to the next of kin of the testator and that the other one-half of the said nine-tenths must be held on trust for the four other charities named in the said paragraph of the said will and therein described as The Burwood Children's Home Weldon Street Burwood conducted by the Church of England (being the defendant the Church of England Children's Homes Burwood) the Church of England Home for Children known as Havilah near Wahroonga the Church of England Home for Boys at Carlingford and the Church of England Home for Girls now situate at Glebe but shortly to be removed to Carlingford and now situate at Carlingford and for such other charitable objects benefiting in particular young children as may from time to time be or have been admitted by the trustees as in the said clause of the said will mentioned." And the Court further declared: "That the said four institutions mentioned in clause sixteen of the said will and those institutions which may be duly admitted from time to time in accordance with this order will be entitled to the income of the said shares of residue in such shares and proportions as the trustees for the time being of the said will may determine after consultation with the said defendant Annie Rebecca Small."

The Federal Commissioner of Taxation assessed the estate of the deceased Small to estate duty, and included in the assessable value the sum of £33,700, being the value of one-half of the residuary estate of the testator less one-tenth of the said one-half bequeathed by the said will to the Home of Peace for the Dying, Addison Road, Petersham, and the Home for Incurables, Ryde. The question is whether estate duty is assessable or payable upon one-half of the residuary estate, less one-tenth thereof in clause 16 of the will mentioned, or any and what part thereof.

The executors of the will of the deceased insist in the first place that neither they nor the taxing authorities are bound in these proceedings by the decree of the Supreme Court (Sassoon's Case[1]); and, next, that the bequests in clause 16 of the will are valid in law and exempted from estate duty by reason of the provisions of sec. 8 (5) of the Estate Duty Assessment Act 1914-1928.

A trust to apply a particular fund for charitable or benevolent objects benefiting, in particular, young children, does not, I think, constitute a good charitable trust (In re Macduff; Macduff v. Macduff[2]; Attorney-General for New South Wales v. Adams[3]). It may be that the words in the will following this trust constitute a gift to specific institutions and other unspecified institutions benefiting children. Specific institutions—the Burwood Children's Home, the Church of England Home for Children, and the Church of England Home for Girls—are named. But then the testator includes "any other homes for children founded by the Church of England," and such other institutions benefiting young children as the testator's wife directs his trustees to admit to share in the gift. It is not necessary in the present case to say whether these directions constitute a charitable trust, for the question is whether the bequest falls within the provisions of the Estate Duty Assessment Act 1914-1928, sec. 8 (5). It may be conceded that the institutions contemplated by the testator were homes for the care, education and training of children, and, in large measure, neglected, necessitous or friendless children. But the paramount or chief purpose of the gift is not a religious, or a scientific, or a public educational purpose. It is not religious, for, while religious instruction in the doctrines of the Church of England was no doubt intended, the gift might quite consistently with the will be applied to other purposes. It is not a public educational purpose (cf. Act, sec. 8 (8), and Chesterman's Case[4]), though education was no doubt intended; in any case, the gift might, quite consistently with the will, be applied to other purposes. It is clearly not for scientific purposes, nor a gift to a public hospital. Nor is it, in my opinion, a gift to a public benevolent institution. This Court held, in Perpetual Trustee Co. v. Federal Commissioner of Taxation[5], that that expression referred to institutions organized for the relief of poverty, sickness, destitution or helplessness. The institutions named by the testator or those which may be admitted to share in the benefaction, do give relief to the needy, the sick, and the helpless. But they are private organizations conducted by or in connection with the Church of England in Australia, and are not founded, organized or maintained by or under or in connection with any public authority, or managed by its representatives. The expression "public benevolent institution" is not a term of art (see Girls' Public Day School Trust Ltd. v. Ereaut[6]; Perpetual Trustee Co. v. Federal Commissioner of Taxation). The denominational homes mentioned in the testator's will or which may be admitted to share in his benefaction are not, in my opinion, within the expression. It is not unimportant to remember that the non-technical words "public benevolent institution" were inserted in the Act in consequence of the decision in Chesterman's Case[7]. The history of the matter may be found in that case and in Swinburne v. Federal Commissioner of Taxation[8], Young Men's Christian Association v. Federal Commissioner of Taxation[9], and Adamson v. Melbourne and Metropolitan Board of Works[10].

Lastly, it was contended that the bequest of the testator was to a fund established and maintained "for the purpose of providing money for use for such institutions or for the relief of persons in necessitous circumstances in Australia." The gift cannot be brought within this exemption. Even if the gift be treated as establishing a fund, then its purpose is not that of providing money for use for any public hospital or for any public benevolent institution within the meaning of the Act. Again, if the gift be treated as establishing a fund, the purpose is not necessarily, or in any way exclusively or chiefly, the relief of persons in necessitous circumstances in Australia, though such purposes are no doubt within its objects.

The question for our decision is whether the will of William Paul Small so disposes of half the residue of his estate that it receives the benefit of the exemption from estate duty given by sec. 8 (5) of the Estate Duty Assessment Act 1914-1928. That sub-section provides that "estate duty shall not be assessed or payable upon so much of the estate as is devised or bequeathed ... for religious, scientific, or public educational purposes in Australia, or to a public hospital or public benevolent institution in Australia, or to a fund established and maintained for the purpose of providing money for use for such institutions or for the relief of persons in necessitous circumstances in Australia."

The trusts, upon which the half share of residue is given, are expressed with much circumlocution and redundancy. The first step in considering the application of the exemption is to determine the effect of this verbiage. As among the beneficiaries and the executors and trustees, the effect of the provision in the will has already been declared by an order of the Supreme Court made on originating summons by Long Innes J. But the appellants (the executors) contend, on the authority of Sassoon's Case[11], that in these proceedings neither the estate nor the Crown is bound by that order and that we must decide for ourselves what beneficial interests were created by the will independently of the Supreme Court's decision. The reason given is that liability to estate duty arose at the moment of death and all the facts and factors governing its ascertainment were then fixed: a judicial decision interpreting the will and declaring what beneficial interests devolved upon the testator's death operates as an estoppel inter partes and not otherwise, and the Crown in right of the Commonwealth was not a party to the proceeding in which the decision was given. In the present case, the order of the Supreme Court declared that the trusts of nine twentieth parts of the half share of the residue were void, with the result that the next of kin were entitled to that portion of the residue. It declared charitable trusts in respect of the remaining eleven twentieth parts of the half share of residue. It may be said that the order results in the actual devolution of property upon the next of kin, and that more is involved in it than mere estoppel by record or per rem judicatam. But, in my opinion, the claim for exemption fails, whether it is based upon the will unaffected by the order of Long Innes J., or as interpreted by that order. The provision of the will dealing with the half share of residue in question opens with a direction to the trustees to stand possessed of the same and the income derived therefrom for charitable or benevolent objects benefiting in particular young children. In dealing with this clause, Long Innes J. said:—"I am not prepared to hold that a trust to apply a particular fund for charitable or benevolent objects benefiting in particular young children is necessarily limited to objects which benefit young children, nor that, even if it were so limited, it would constitute a good charitable trust." I entirely agree with this view; but, having regard to what follows this clause, I think it should be construed as a general introductory statement describing the nature of the trusts which the testator proceeds to declare. These trusts are much more limited, and I do not think their ambit is enlarged by the description with which they are introduced. On the other hand, if and in so far as the trusts particularly declared in what follows might otherwise be interpreted as going beyond objects which are charitable or benevolent, I think the preliminary statement should be treated as implying a restriction to things answering that description. The somewhat involved statement of trusts which follows this clause, when analyzed, amounts, in my opinion, to a direction to the trustees to pay one-tenth of the income of one-half the residue to two namedcharities, and to pay the remaining nine-tenths to four named Church of England Homes for children and to such "other homes for children founded by the Church of England having for its [sic] objects the care and control of children," as the testator's widow during her life should direct, and, after her death, as the trustees should think fit, and to such additional institution or institutions benefiting young children as his widow during her life should direct and after her death as the trustees should think fit. I think a further limitation upon the description of institutions, which may be added to the four named by the will itself, should be implied from the introductory clause. They must, I think, come within the class indicated by the expression "charitable or benevolent objects." There is much obscurity as to the meaning of the clause relating to the discretion, after the widow's death, to add institutions, Church of England and others, to the number benefiting. But, I think, it should be interpreted as vesting such a discretion in them and as directing them in exercising it to consider any wishes she expresses in her lifetime. The Commissioner of Taxation concedes that the four named Church of England Homes for children may be "public benevolent institutions" within the meaning of those words in sec. 8 (5) of the Estate Duty Assessment Act. But he contends that "other homes for children founded by the Church of England having for its object the care and control of children" is a description capable of including homes which were not "public benevolent institutions" within the statute. He contends that, a fortiori, the category "other institutions benefiting young children," even when restricted by the expression in the introductory clause "charitable or benevolent objects," extends far beyond public benevolent institutions. The description "public benevolent institution" has received an interpretation by this Court (Perpetual Trustee Co. v. Federal Commissioner of Taxation[12]). It is to be treated as a compound expression referring to institutions "organized for the relief of poverty, sickness, destitution, or helplessness" (per Starke J., at p. 232). The phrase I used was "the relief of poverty, distress, suffering or misfortune" (p. 233). Evatt J. said (at pp. 235, 236):—"Such bodies vary greatly in scope and character. But they have one thing in common: they give relief freely to those who are in need of it and who are unable to care for themselves. Those who receive aid or comfort in this way are the poor, the sick, the aged, and the young. Their disability or distress arouses pity, and the institutions are designed to give them protection. They are very numerous—the nobler a soul is the more objects of compassion it hath—and they have come to be known as benevolent institutions." McTiernan J. dissented on the ground that this was too narrow a meaning. Conceding that a gift to an institution benefiting young children in a way which makes it a charitable or benevolent object may be a valid disposition for charitable purposes, I nevertheless do not think that the institutions it covers are confined to public benevolent institutions of the required description. Institutions connected with the health, upbringing, welfare, and education of young children coming within the legal conception of "charitable" may be imagined to which no one would apply the term "public benevolent institution." Nor would such institutions necessarily come within any other of the categories exempted by sec. 8 (5) from estate duty. They need not be religious. They need not be public educational. They need not be public hospitals. On another occasion I expressed the opinion that "to obtain an exemption upon the ground of relieving persons in necessitous circumstances in Australia there must be a devise or bequest to a fund established and maintained for, or for the purpose of providing money for, the relief of such persons. ... This construction is, I think, to be preferred to one which attaches the words for the relief etc. to devised or bequeathed. In arrangement the two expressions are separated by many alternative phrases; in meaning the exemption would be surprisingly large; and in policy it would depart widely from that disclosed by the definition of in sec. 14 of Act No. 32 of 1927 whence much of its phraseology is taken" (Baker v. Federal Commissioner of Taxation[13]). I adhere to this construction, which, in my opinion, makes it impossible to apply the last limb of the exempting provision to the trust. It follows that, besides the four named institutions, other institutions may share in the income which are outside the description exempted from duty. It may be true that the four named institutions will be entitled to receive some of the income and that it would be a breach of trust to apply all of it to the added institutions, or all of it but an illusory amount. But the trustees (subject to the widow's directions) have a wide discretion in the application of income among the various institutions and no definite sum is applicable to any of them. The whole income is devoted to all which from time to time are among the number benefiting, but no divisible or definable part of income or corpus is given to any one of them. (Cf. Baker v. Federal Commissioner of Taxation[14].) In my opinion there is no separable part of the estate of the testator contained in the disposition of the nine-tenths part of half the residue that is devised or bequeathed for the purposes or institutions described in sec. 8 (5). The same result follows if the question is decided upon the basis of the declaration made by Long Innes J. Clearly the nine twentieth parts of half the residue, which under that order devolve on the next of kin, could not be exempt. Of the remaining eleven twentieth parts two go, in any case, to charities for which an exemption has been conceded. The remaining nine-twentieths are declared to be held upon trusts for the four named institutions and "for such other charitable objects benefiting in particular young children as may from time to time be or have been admitted by the trustees as in the said clause of the said will mentioned." The order further declares "that the said four institutions mentioned in clause sixteen of the said will and those institutions which may be duly admitted from time to time in accordance with this order will be entitled to the income of the said shares of residue in such shares and proportions as the trustees for the time being of the said will may determine after consultation with the" widow. For the reasons already given, the discretion thus belonging to the trustees and the widow to add institutions and distribute income among them prevents the trust operating as a bequest and devise to or for "public benevolent institutions."

For these reasons I think the question in the special case should be answered in the affirmative.

In my opinion the question in the special case should be answered in the affirmative.

Mr. Bonney contended, on the authority of In re Sassoon[15], that the decretal order was not binding, in these proceedings, on the appellant or the Crown. The appellant, the Public Trustee, was the plaintiff in the suit in which the decretal order was made, and the other appellants were some of the defendants. But the Crown in right of the Commonwealth was not a party. In the present case it is unnecessary to decide whether the appellant, notwithstanding that it was a party to the suit, is free in these proceedings to contend that the construction declared by the decretal order is erroneous. (Cf. Templeton v. Leviathan Pty. Ltd.[16]; Stuart v. Kingston[17].)

If the present case should be decided on the basis of the decretal order, the appellants, in my opinion, fail. The decretal order declares that the part of the estate with which the appeal is concerned passes to the next of kin and the remainder must be held by the trustees upon the charitable trust therein set out. It is unnecessary to repeat the terms of this trust. Even if "charitable objects" should be limited to mean "charitable institutions," the trustees have a discretion to appropriate part of the trust property to institutions not answering the description of "public benevolent institutions" although they are charitable according to the legal meaning of the word. The essential characteristics of a "public benevolent institution" within the meaning of sec. 8 (5) are described in Perpetual Trustee Co. v. Federal Commissioner of Taxation[18]. Furthermore, "no distinct and definable part" of this share is given under the will as construed by the decretal order, to the four named institutions (Baker v. Federal Commissioner of Taxation[19]). The part of the estate with which the question is concerned is, therefore, not exempt from estate duty on the ground that it is devised or bequeathed to a public benevolent institution, if the question falls for decision on the basis of the decretal order. Sec. 8 (5) of the Estate Duty Assessment Act also exempts from the estate duty "so much of the estate as is devised or bequeathed ... to a fund established and maintained for the purpose of providing money for use for such institutions or for the relief of persons in necessitous circumstances in Australia." In interpreting this part of the section, Dixon J. said in Baker v. Federal Commissioner of Taxation[20]:—"Moreover, if the proper construction of sec. 8 (5) is that to obtain an exemption upon the ground of relieving persons in necessitous circumstances in Australia there must be a devise or bequest to a fund established and maintained for, or for the purpose of providing money for, the relief of such persons, then the third trust altogether fails to comply with its requirements. This construction is, I think, to be preferred to one which attaches the words for the relief etc. to devised or bequeathed." I agree with this interpretation. In the present case there is no devise or bequest to "a fund" as described in the section.

On the assumption that the appellants were free to contend that the decretal order was erroneous, Mr. Bonney contended that, upon the true construction of the will, the part of the estate with which the appeal was concerned was dedicated by the testator to valid charitable uses, and accordingly no part thereof passed to the next of kin and the whole of it was exempt as a devise or bequest to one or more "public benevolent institutions" or "for the relief of persons in necessitous circumstances" within the meaning of sec. 8 (5).

A devise or bequest for the last-mentioned object is not within this section (Baker v. Federal Commissioner of Taxation[21]). It would be otiose to refer again in detail to the language of clause 16 of the will. In order to test whether the appellant could succeed in establishing that there is a devise or bequest of part of the estate to one or more public benevolent institutions, if the question of what is the true construction of the will is res integra, it may be assumed, without deciding, that the material parts of clause 16 do confine the discretion of the trustees to charitable purposes, and do not fail to create a valid charitable trust because on their true construction the trustees are not vested with a discretion to select non-charitable as well as charitable purposes. But this construction would still leave trustees with a discretion to select charitable institutions which are not "public benevolent institutions" within the meaning of sec. 8 (5). Furthermore, there would not be a devise or bequest of "a distinct and definable part of the estate" to the four named charitable institutions, each of which, it may be conceded, answers the description of a "public benevolent institution."

Order that the question in the special case be answered: Yes. Costs of case stated costs in the appeal.

Solicitor for the respondent, W. H. Sharwood, Crown Solicitor for the Commonwealth.

[1] (1933) Ch. 858.

[2] (1896) 2 Ch. 451.

[3] [1908] HCA 51; (1908) 7 C.L.R. 100.

[4] [1923] HCA 24; (1923) 32 C.L.R. 362, at pp. 385, 386.

[5] [1931] HCA 20; (1931) 45 C.L.R. 224.

[6] (1931) A.C. 12.

[7] [1925] UKPCHCA 2; (1926) A.C. 128; 37 C.L.R. 317.

[8] [1920] HCA 8; (1920) 27 C.L.R. 377, at pp. 384-386.

[9] [1926] HCA 2; (1926) 37 C.L.R. 351.

[10] (1929) A.C. 142.

[11] (1933) Ch. 858.

[12] [1931] HCA 20; (1931) 45 C.L.R. 224.

[13] (1932) Unreported. [Noted, 6 A.L.J. 111.]

[14] (1932) Unreported. [Noted, 6 A.L.J. 111.]

[15] (1933) Ch. 858.

[16] [1921] HCA 55; (1921) 30 C.L.R. 34, at pp. 57, 58, 77, 78.

[17] [1923] HCA 17; (1923) 32 C.L.R. 309, at pp. 324, 325, 337, 355.

[18] [1931] HCA 20; (1931) 45 C.L.R. 224.

[19] (1932) Unreported. [Noted, 6 A.L.J. 111.]

[20] (1932) Unreported. [Noted, 6 A.L.J. 111.]

[21] (1932) Unreported. [Noted, 6 A.L.J. 111.]

High Court of Australia

Public Trustee (NSW) v Federal Commissioner of Taxation [1934] HCA 10; (1934) 51 CLR 75 (14 May 1934)

HIGH COURT OF AUSTRALIA