Way v Commissioner of Stamp Duties (NSW) [1949] HCA 37; (1949) 79 CLR 477 (18 August 1949)

HIGH COURT OF AUSTRALIA

WAY v. COMMISSIONER OF STAMP DUTIES (N.S.W.) [1949] HCA 37; (1949) 79 CLR 477

Death Duty

High Court of Australia
Dixon(1), McTiernan(1), Williams(1) and Webb(1) JJ.

CATCHWORDS

Death Duty - Dutiable estate - Notional estate - Charitable trust created by deceased - Conditions - Appropriation of trust property - Direction by settlor - Nature of trust - Time of taking effect - Powers of trustees - Property owned by trustees - Dispensation in trust instrument - "Any property passing under any settlement" - "That property" - "Restore to himself" - "Reclaim" - "Possession and enjoyment" - Stamp Duties Act 1920-1940 (N.S.W.) (No. 47 of 1920 - No. 50 of 1940), s. 102 (2) (a), (c), (d).*

HEARING

Sydney, 1949, August 3-5, 18. 18:8:1949
APPEAL from the Supreme Court of New South Wales.

DECISION

August 18.
The COURT delivered the following written judgment.
These reasons for judgment were prepared by Williams J. This is an appeal by Court of New South Wales answering the first question submitted in a case stated under s. 124 of the Stamp Duties Act 1920-1940 (N.S.W.) by the respondent the Commissioner of Stamp Duties in favour of the commissioner. (at p487)

2. The question is whether certain trust funds known as the R.W. Gillespie trust of the value of 81,403 pounds 19s. 6d. form part of the dutiable estate of R. W. Gillespie, deceased, for the purposes of death duty under the provisions of the Act. The respondent claims that these funds are made part of the notional estate of the deceased by virtue of the provisions of s. 102 (2) (a), or alternatively of s. 102 (2) (c), or alternatively of s. 102 (2) (d) of the Act. Jordan C.J. and Maxwell J. were of opinion that they were made part of the notional estate by both s. 102 (2) (a) and s. 102 (2) (c), while Owen J. was of opinion that they were so made by s. 102 (2) (c). The funds in question consisted of the whole of the assets which at the date of the death of the deceased on 2nd August 1945 were still subject to the trusts of a certain indenture of settlement dated 5th September 1928. By this indenture made between the deceased as settlor of the one part and the settlor and three other persons as trustees of the other part, as varied by a subsequent indenture made between the same parties on 1st November 1929, the settlor transferred and assigned certain moneys totalling 18,750 pounds to the trustees of the settlement to be held by them upon the trusts and subject to the conditions and provisions thereinafter set forth. (at p488)

3. The indenture contained the following clauses: "2. The said parties hereto of the second part or the survivors of them or other the trustees for the time being of these presents (all of whom are hereinafter included in the expression 'the Trustees') shall hold the said moneys debts and securities for moneys and property and all other the investments securities and property for the time being representing the same hereinafter referred to as 'the trust fund' upon trust out of the corpus to pay any duty or duties the payment of which may be demanded and enforced by the Government of any of the State(s) of the Commonwealth upon the execution of this Indenture and upon further trust on and after the date of these presents to hold the Trust Fund or the balance thereof as the case may be upon trust to apply and appropriate such Trust Fund and the annual income thereof after payment of all salaries expenses costs charges and outgoings hereinafter authorized towards lawful charitable purposes under the following heads vide licet (a) Educational (b) The relief of poverty in Australia (c) The general benefit of the community in Australia not falling under the preceding head but subject to all the provisions and conditions set out in these presents. 3. The time manner and the head or heads under which the application and appropriation of the said Trust Fund and the said income shall be made and all other details and particulars as to such application and appropriation shall be in the absolute discretion of the Trustees but during the lifetime of the Settlor subject to his direction and approval and the Settlor places on record his belief that it will be found advisable to have completely distributed the trust fund and wound up the trust within ten or fifteen years. 24. The Trustees may also apply and appropriate any property belonging to the Trust in its then present condition for any Trust purposes and may also use any of the moneys of the Trust either corpus or income or both in purchasing any land or land and buildings or in erecting buildings or in altering or in improving buildings to be used or applied for any such purpose. The Trustees may whether during the lifetime of the Settlor or afterwards and shall during the lifetime of the Settlor if he so directs apply and appropriate any property including moneys belonging to the Trust for the purposes of acquiring by purchase or exchange from the Settlor or his executors any real or personal property valued for the purposes of such purchase or exchange at a sum at least five per cent below the valuation of such real or personal property so acquired as ascertained by some independent valuator appointed by the Trustees other than the Settlor." In addition to the original sums of money mentioned in these indentures the settlor paid to the trustees of the settlement from time to time further sums of money totalling 51,807 pounds as gifts to be held on the trusts of the settlement and the trustees used these sums in buying from the settlor in all 50,000 shares in Gillespie Bros. Pty. Ltd. and 25,896 shares in seven other companies. All these moneys were paid to the trustees more than three years prior to the date of the death of the settlor. On 30th June 1945, about a month before the settlor's death, the trustees used 281 pounds 15s. of moneys the subject of the trusts in buying from the settlor seven hundred and twenty-five shares in two companies. None of the shares bought by the trustees from the settlor was acquired in accordance with valuations made pursuant to clause 24 of the indenture. The settlor was one of the trustees of the settlement from the date of its execution to that of his death. (at p489)

4. Before referring to the relevant provisions of the Stamp Duties Act, it will be convenient to discuss the meaning of clauses 2, 3 and 24 of the settlement. There are three objects of the charitable trust, the trustees having a discretion to apply the trust funds both income and corpus for the advancement of these objects. The settlor in his lifetime had a control over the manner in which the discretion of the trustees should be exercised to the extent that the exercise was subject to his direction and approval. Trustees of a charity in the absence of a provision to the contrary in the trust instrument can act by a majority. In this case there is a provision to the contrary, and it may be that the word "direction" would have been sufficient to compel the other trustees to exercise their discretion as the settlor directed, but the better opinion would appear to be that the effect of the provision was merely to give the settlor a right of veto, so that the majority could not exercise their discretion in a manner of which the settlor did not approve. But on either view it would not be correct to construe the settlement as containing two trusts (1) a trust during the lifetime of the settlor to distribute the trust funds amongst the charitable objects in accordance with his direction and approval; and (2) a trust after his death to distribute the trust funds amongst such objects in the absolute discretion of the trustees. It is not a trust which can be divided into a trust, like that in Waldo v. Caley [1809] EngR 274; (1809) 16 Ves Jun 206 (33 ER 962) , limited to endure for the life of the settlor with a further and different trust to take effect on his death. It is a single trust though different persons are to exercise the discretion as to the manner in which the trust funds should be distributed amongst the charitable objects during the life of the settlor and after his death. There is a general charitable intention to benefit the objects of the trust irrespective of the mode by which the gift is to be carried into effect from time to time, and in such a case equity will not allow the trust to fail by reason of the failure of the appointed mode. The trust would therefore have taken effect during the life of the settlor although he had refused to act as a trustee or had retired or had become for some other reason unwilling or unable to exercise his discretion (Attorney-General v. Gladstone [1842] EngR 752; (1842) 13 Sim 7 (60 ER 3) ; In re Willis (1921) 1 Ch 44 ; Halsbury's Laws of England, 2nd ed., vol. 4, p. 192). The settlement contains one trust and one trust only and that is a charitable trust which took effect immediately upon the settlor handing the initial sum of money to the trustees of the settlement. (at p490)

5. The second question of construction relates to the proper meaning of clause 24 of the settlement. The preceding clause 23 authorizes the trustees to apply so much of the income of the trust fund as they think fit for the purposes of the trust and capitalize the balance, and the succeeding clause 25 authorizes the trustees to retain unrealized so long as they might think fit any of the properties or securities then assigned to them or which might thereafter be vested in them by gift, bequest, or devise, and to realize any of them which they might think fit and from time to time to invest any moneys forming part of the trust funds available for investment in a wide range of investments. Clause 24 in the first limb authorizes the trustees to apply and appropriate any property for any trust purposes and to use any moneys of the trust in purchasing any land or buildings or in erecting buildings or in altering or improving buildings to be used for the purposes of the trust. It then proceeds in the second limb to authorize the trustees during the life of the settlor or afterwards to apply and appropriate any property including moneys belonging to the trust for the purposes of acquiring by purchase or exchange from the settlor or his executors any real or personal property valued for the purposes of such purchase or exchange at a sum at least five per cent below the valuation of such real or personal property so acquired as ascertained by some independent valuator appointed by the trustees other than the settlor. It provides that the trustees shall during the lifetime of the settlor if he so directs apply and appropriate any property including moneys belonging to the trust in this manner. It is a rule of equity that a trustee must not place himself in a position where his interest and duty may conflict. He cannot therefore in the absence of a special dispensation in the trust instrument either sell his own property to the trust estate or purchase any property from the trust estate. The purpose of the second limb is to provide such a dispensation. It authorizes the trustees to apply and appropriate trust funds for the purpose of acquiring by purchase or exchange any real or personal property of the settlor in the manner therein mentioned. The valuations provided for are only valuations of the real and personal property of the settlor. There is no express provision for valuing the trust assets. The second limb should not be read as meaning that the settlor may direct the trustees to exchange some particular item of trust property for some particular property of his own. The words "or exchange" are only intended to authorize the trustees to acquire the real and personal property of the settlor not only by the purchase but also by the exchange of some of the trust property for some property of the settlor. The second limb provides the necessary machinery to enable the trustees of the settlement to acquire property from one of themselves. It also enables the settlor as one of the trustees to require the other trustees to make such an acquisition. But it does not enable the settlor to require the other trustees to apply any particular part of the trust property for this purpose, and it does not enable the settlor to require the trustees to acquire his property by exchange and not by purchase. The discretion as to what part of the trust property shall be used to acquire the settlor's property and as to whether the acquisition shall be for cash or by way of exchange is a matter for the trustees of the settlement as a whole and if there is a difference of opinion for the majority of those trustees. The words "pay and appropriate any property including moneys belonging to the trust" are intended to remove any doubt that the authority of the trustees to use the trust funds for this purpose extends to the whole trust estate and not to any particular part of it. It would require very clear words to empower the settlor to compel the trustees to use some particular portion of the trust funds to acquire his property and in particular to exchange some trust asset selected by himself for an asset of his own. (at p491)

6. The contrary view which was accepted by the Supreme Court would be that the clause authorized the settlor at any time during his life to direct the trustees of the settlement to exchange any asset of the trust for an asset of his own. On this view the settlor had a sort of floating right of selection exercisable against the assets of the trust which would crystallize against any particular asset upon its exercise. But if this was intended the settlement would have provided for an independent valuation of the trust asset. Further the trust assets from time to time would presumably consist of moneys in the bank and tangible real and personal property. Clause 24 authorizes the trustees to purchase land and buildings to be used or applied for the purposes of the trust, so that the tangible property might comprise a school and it could hardly have been intended that the settlor should have the power to direct the trustees to exchange the school buildings and shut down the school for some shares which he desired to transfer to the trust. It was suggested during the argument that the clause might have been inserted to enable the settlor to require a transfer of some or all the shares in Gillespie Bros. Ltd. if he desired to increase his voting power in that company. But the settlor could achieve this object by registering himself as the first joint holder of the trust shares. As a trustee he would have to exercise his vote for the benefit of the trust, but there is no reason to believe that the interests of the trust and his own personal interests would not coincide. The material words of clause 24 of the settlement are not apt to create a covenant between the settlor and himself and the other trustees which by virtue of s. 72 of the Conveyancing Act 1919 (N.S.W.) would be construed and capable of being enforced in like manner as though the covenant had been made between the settlor and the other trustees. No particular form of words is necessary to create a covenant but the words must be sufficient to establish an agreement to do a thing: Norton on Deeds 2nd ed. (1928), p. 532. The power to direct the other trustees conferred on the settlor by clause 24 is at most a power as a trustee to control the exercise of the discretion by the trustees as a body and it is a fiduciary power which must be exercised in the interests of the trust property. If the other trustees refuse to accede to his direction, the only remedy of the settlor would be to sue them for breach of trust joining the Attorney-General as a party to represent the charities. He could not sue the other trustees for specific performance of a contract to exchange an asset of his own for an asset of the trust. (at p492)

7. It will now be convenient to consider the relevant provisions of the Stamp Duties Act. There is first section 102 (2) (a) which includes in the notional estate all property which the deceased has disposed of by way of settlement containing any trust in respect of that property to take effect after his death. In Rabett v. Commissioner of Stamp Duties (1929) AC, at p 448 Lord Buckmaster, delivering the judgment of the Privy Council, included in the trusts that took effect after the death of the settlor in that case a trust enabling his widow alone to sell and vary investments. But it would appear that this machinery trust was included among such trusts per incuriam. It is at least clear that the paragraph does not refer to powers but to trusts. It is dealing with dispositions, that is with beneficial interests created in property, and therefore applies to the beneficial trusts and not to the administrative trusts and powers of a trust instrument. Even if the paragraph does include administrative trusts, there are in the settlement no administrative trusts but only powers. The settlement contains only the one trust, namely the charitable trust for educational purposes, the relief of poverty in Australia and the general benefit of the community in Australia not falling under these heads. This trust took effect in the lifetime of the settlor and did not in any sense take effect after and by reference to his death. Accordingly, as Owen J. held, the respondent's claim, so far as it is based on s. 102 (2) (a) of the Act, fails. (at p493)

8. The next section is s. 102 (2) (c). This section provides that there shall be included in the dutiable estate of the deceased any property passing under any settlement, trust or other disposition of property made by the deceased (i) by which an interest in or benefit out of or connected with that property, or in the proceeds of the sale thereof, is reserved either expressly or by implication to the deceased for his life or for the life of any other person, or for any period determined by reference to the death of the deceased or of any other person; or (ii) which is accompanied by the reservation or assurance of, or a contract for, any benefit to the deceased for the term of his life or of the life of any other person, or for any period determined by reference to the death of the deceased or of any other person; or (iii) by which the deceased has reserved to himself the right, by the exercise of any power, to restore to himself or to reclaim that property or the proceeds of the sale thereof. The first question that arises under the section relates to the meaning of "any property passing under any settlement" or in other words to the meaning of the words "that property" in the section. It was contended for the appellants that the property in question was the sums of money which were originally handed to the trustees of the settlement by the settlor to be held on the trusts of the settlement and the further sums of money which were subsequently handed to the trustees by the settlor to augment the trust funds. It was contended that pars. (i), (ii) and (iii) could have no operation in respect of these sums of money and the section was therefore inapplicable. On this point counsel for the appellants relied particularly on the judgment of Isaacs J. in Dent v. Commissioner of Stamp Duties [1909] HCA 91; (1909) 9 CLR 406 . There the question arose as to the meaning of property passing under a voluntary settlement for the purposes of s. 49 (2) (e) of the Stamp Duties Act 1898 (N.S.W.). Isaacs J. was of opinion that the property did not include the natural increase in the stock on a station between the date of the settlement and the death of the settlor. But no such question arises here. The only question is whether the words "that property" refer to the identical property originally settled or to the trust funds as they existed from time to time, and on that point there was no difference of opinion between Isaacs J. and the other members of the Court. Griffith C.J. said that the property passing under the settlement means "all property the title to which is immediately derived from the deed" (1909) 9 CLR, at p 416 . Isaacs J. said that the property in question "must be the property which passed so far as it exists, and in whatever form it exists . . . I assume the words are sufficient to comprise the property assigned, into whatever shape it may have been transmuted, so long as it remains substantially the representative of the property actually transferred" (1909) 9 CLR, at pp 422, 423 . There are remarks of his Honour to the same effect in Commissioner of Stamp Duties (N.S.W.) v. Perpetual Trustee Co. Ltd. (Watt's Case) (1926) 38 CLR, at p 35 . The learned author of Green on Death Duties 2nd ed., (1947), p. 86 says, in reference to the corresponding English legislation, that the property passing under a settlement does not connote a passing on death but "broadly speaking, it means merely property comprised in the settlement or subject to the trust." The remarks of Dixon J. in Vicars v. Commissioner of Stamp Duties (1945) 71 CLR, at pp 340-343 are to the same effect. The purpose of the Stamp Duties Act is to include in the notional estate of a settlor for the purposes of death duty property which can be identified and valued at the date of death, and the words "that property" in the section mean the trust fund as it exists from time to time. (at p494)

9. The power of discretion conferred on the settlor is conferred for his life so that the first question is whether this power is within the meaning of par. (i) an interest in or benefit out of or connected with the trust funds or in the proceeds of sale thereof. These are wide words, but they are not wide enough to apply to the right conferred on the settlor by clause 24 of the settlement. This right was at most a right to have his real or personal property purchased with trust moneys or exchanged for trust property on terms advantageous to the trust and only when the settlor in the exercise of a fiduciary power thought it proper to direct the trustees to acquire his property on these terms. This is not an interest in or benefit out of or connected with the settled funds within the meaning of the paragraph. It is simply a power to alter the investment of the trust funds for the benefit of the trust. The power does not confer on the settlor any beneficial interest in or the right to receive any payment out of or connected with the income or corpus of the trust as it exists from time to time. To fall within the paragraph such an interest in or benefit out of or connected with the trust fund must confer on the settlor some legal or equitable right to obtain some benefit in money or money's worth for his own advantage out of or connected with the trust property. In Attorney-General v. Farrell (1931) 1 KB 81 the Court of Appeal held, following Attorney-General v. Heywood (1887) 19 QBD 326 , that the settlor had an interest in the property passing under the settlement where he was one of the objects of a discretionary trust during his life. The judgments in Attorney-General v. Heywood (1887) 19 QBD 326 and Attorney-General v. Farrell (1931) 1 KB 81 support the view that the kind of interest or benefit to which the section is intended to apply is an advantage of this kind. The interest or benefit must be such that the beneficiaries under the settlement would derive an advantage from the death of the settlor or some other person. Further, since clause 24 of the settlement does not create a covenant, it could not be said that the disposition of property made by the settlor was accompanied by the reservation or assurance of, or a contract for, any benefit to the settlor for the term of his life within the meaning of par. (ii). There remains par. (iii). The words "restore to himself" and "reclaim" in this paragraph indicate that it is intended to apply to cases where the settlor has the power to diminish the value of the trust property by freeing it or some part of it from the trusts and appropriating it to his own use without consideration or adequate consideration in money or money's worth, and it would not therefore apply to an alteration in the investment of the trust assets from which the settlement and not the settlor derived the advantage. Accordingly the respondent's claim, so far as it is based upon s. 102 (2) (c), also fails. (at p495)

10. The final section of the Act is s. 102 (2) (d). This section provides that there shall be included in the dutiable estate of the deceased "any property comprised in any gift made by the deceased at any time, whether before or after the passing of this Act, of which bona fide possession and enjoyment has not been assumed by the donee immediately upon the gift and thenceforth retained to the entire exclusion of the deceased, or of any benefit to him of whatsoever kind or in any way whatsoever whether enforceable at law or in equity or not and whenever the deceased died." In Commissioner of Stamp Duties of New South Wales v. Perpetual Trustee Co. Ltd. (1943) AC 425 where the settlor had appointed himself one of the trustees, Lord Russell of Killowen, delivering the judgment of the Privy Council, said (1943) AC, at p 440 that "the trustees alone were not the donee. They were in no sense the object of the settlor's bounty. . . . The linking of possession with enjoyment as a composite object which has to be assumed by the donee indicates that the possession and enjoyment contemplated is beneficial possession and enjoyment by the object of the donor's bounty." In the present case the beneficial possession and enjoyment of the donor's bounty was immediately and indefeasibly vested in the objects of the charitable trust. The income and corpus of the trust property could be applied for the benefit of those objects and for no other purposes. The settlor as donor was therefore entirely excluded ab initio from possession and enjoyment of the settled property and had no enjoyment and possession such as is contemplated by the section. Further it follows from what has already been said that the settlor was excluded from any benefit of whatsoever kind or in any way whatsoever whether enforceable at law or in equity because the benefit from the exercise of the power contained in clause 24 was a benefit to the settlement and not to the settlor. Accordingly the respondent's claim, so far as it is based upon s. 102 (2) (d), also fails. (at p496)

11. The appeal should be allowed with costs. The order of the Supreme Court should be set aside and in lieu thereof an order made answering the first question in the negative, the second question "74,915 pounds 4s. 4d.", and the third question "by the Commissioner of Stamp Duties." There should be an order that the sum of 26,049 pounds 5s. 8d. and the sum paid in as security for costs be repaid by the respondent to the appellants. The respondent should pay the costs of the proceedings in the Supreme Court. (at p496)

ORDER

Appeal allowed with costs. Order of Supreme Court set aside and in lieu thereof order answering first question in the negative, second question "74,915 pounds 4s. 4d.", and third question "by the Commissioner of Stamp Duties." Order that the sum of 26,049 pounds 5s. 8d. and the sum paid in as security for costs be repaid by the respondent to the appellants. Respondent to pay the costs of the proceedings in the Supreme Court.