Commissioner of Stamp Duties (NSW) v Pearse [1951] HCA 43; (1951) 84 CLR 490 (27 July 1951)

HIGH COURT OF AUSTRALIA

THE COMMISSIONER OF STAMP DUTIES (N.S.W.) v. PEARSE [1951] HCA 43; (1951) 84 CLR 490

Stamp Duties

High Court of Australia
Dixon(1), McTiernan(2), Williams(2), Webb(2) and Fullagar(3) JJ.

CATCHWORDS

Stamp Duties - Assets - Valuation - Shares in company - Probate duty - Going concern - Basis of assessment - Commissioner's discretion - Appeal - State case - Court - Powers of review - Solicitor-trustee - Authorized by will to charge profit costs - Liability to duty - Stamp Duties Act 1920-1949 (N.S.W.) (No. 47 of 1920 - No. 37 of 1949), ss. 102, 124, 127 (1) (c).

HEARING

Sydney, 1951, April 19, 20, 23; July 27. 27:7:1951
APPEAL from the Supreme Court of New South Wales.

DECISION

July 27.
The following written judgments were delivered:-
DIXON J. For the reasons given in the judgment prepared by Williams J. I am

2. But I have come to the conclusion that the cross-appeal should be allowed. (at p506)

3. The purpose of the cross-appeal is to obtain a decision from this Court on a question which, though it must often arise in the assessment of duty, can never involve a large amount of duty. It depends upon the operation of a provision in a will authorizing the payment to an executor or a trustee who is a solicitor of profit costs for professional work which he may do for the estate. (at p506)

4. The Seventh Schedule of the Stamp Duties Act 1920-1949 contains four columns each specifying a different rate of duty. The first column imposes a rate of duty on so much of the estate as consists of property which passes under the will or devolves upon the intestacy of the deceased to the widow or lineal issue of the deceased. The second and third columns impose higher rates of duty on property passing to or devolving upon other objects. The fourth column imposes a still higher rate of duty on so much of the estate as consists of property not otherwise provided for in the previous columns. Unless a provision of the kind stated contained in the will brings any part of the estate under the higher duty the provisions of the will are such that the final balance of the estate would all pass to the widow and lineal issue of the testator and so fall under the first column. The Commissioner contends, however, that a clause of such a character operates to impart to the solicitor a beneficial interest in the property and that it is necessary to estimate the value of the interest for the purposes of the assessment of duty, because to that extent the estate cannot "pass" to the beneficiaries mentioned in the first schedule and must fall under the higher duty of the fourth column of the schedule as property not otherwise provided for by the schedule. How you estimate as at the time of the testator's death the amount of costs the solicitor to the estate will earn before it is wound up does not appear. It would seem impossible except in the simplest cases. But for some reason the Commissioner and the executors agreed in the present case "for the purposes of the assessment of Death Duty that the legal costs payable by the estate for past and future legal work should be deemed to be of the value of 250 pounds". (at p507)

5. The actual clause in the will under consideration names Mr. Langley, who is one of the trustees of the will and is a solicitor and declares that he or any trustee for the time being of the will being a solicitor or other person engaged in any profession or business should be entitled to charge, retain and be paid all usual professional or other charges for business or acts done in relation to the trusts (summarizing the clause) if the work was such that the trustees might reasonably require it to be done by a solicitor or other professional person. But no attempt was made to estimate the amount which might be paid to future hypothetical trustees for hypothetical professional services. Perhaps that was thought too difficult or too absurd. But if the estimated future charges of Mr. Langley are to be treated as part of the final balance of the estate consisting of property not passing to the beneficiaries but to him, so must every other expected payment pursuant to the clause in the will be treated as not passing to the beneficiaries. (at p507)

6. If the matter were to be considered apart from authority I should treat it as quite clear that the clause authorizing the payment of costs to Mr. Langley and to other solicitor trustees and of remuneration for their professional or business charges to any other professional or business men who might become trustees could not confer upon him or them such an interest in the estate as to make it possible to say that a part of the estate was not provided for in the earlier column of the schedule - that is to say, that there was part of the estate consisting of property which did not pass either to the widow of the testator or his lineal issue. The purpose of the clause in the will is to relieve professional and business men who become trustees of the operation of the equitable rule which would incapacitate them from receiving remuneration for professional and business services performed for the estate. Its purpose is not dispositive. It does not even provide for their remuneration for executing the duties of the office of trustee. For it is no part of the duty of a trustee to render professional services to the trust. It is not a reward for a service which, by accepting the office of trustee, he becomes bound to perform and so, according to the rule against trustees profiting from the trust, to perform gratuitously; a solicitor, executor or trustee is entitled to employ another solicitor to do the legal work involved in administering the trust. If he acts as solicitor for the estate and charges for his professional services pursuant to a provision in the will authorizing him to do so, his remuneration is limited to what are proper charges for the legal work done. It may be true that as he fills both capacities he cannot as a solicitor be a creditor of himself as a trustee. But in all other respects he occupies the same situation as a creditor of the trust. In other words, his claim upon the assets of the estate is for remuneration for services and not as a beneficiary. What a clause in the trust instrument authorizing him to charge costs does is to enable him to profit by undertaking the work. It does no more than extend over a larger field of work and to cases of a sole trustee the doctrine of Cradock v. Piper [1850] EngR 158; (1850) 1 Mac & G 664 (41 ER 1422) . It may confer a benefit upon him by doing so, but it does not follow that any property passed to the solicitor on death. In my opinion clearly none did. (at p508)

7. The difficulty about the matter arises altogether from the state of the case law concerning clauses authorizing the payment to trustees of costs, professional fees or business charges for work done in the exercise of their profession or calling. In In re Barber; Burgess v. Vinnicome (1886) 31 Ch D 665 , a will had been witnessed by a solicitor named Harmer who was appointed an executor. The will contained a provision declaring that Harmer should be entitled to charge and receive payment for all professional business to be done by him under the will in the same manner as he might have done had he not been an executor. Chitty J. held that this provision was void because Harmer had witnessed the will. His Lordship said of the clause: "It is bounty. It must be a gift to the executor out of the assets of the testatrix which enables him to take what the law does not allow" (1886) 31 Ch D, at p 670 . This decision was followed by Stirling J. in In re Pooley (1888) 40 Ch D 1 , and his decision was upheld by the Court of Appeal. Cotton L.J. declined to give any opinion upon the suggestion that it would follow that legacy duty was payable and said that it might possibly be so, but as regards the solicitor trustee "we have only to consider whether this direction is not in substance a gift to him of so much of the estate as is required to pay the profit costs, and therefore void. It is urged that it is not a gift, for that he has to work for what he receives. That is true, but the clause gives him a right which he would not otherwise have to charge for work if he does do it, and that, in my opinion, is a beneficial gift within the meaning of the section" (1888) 40 Ch D, at p 4 . Lindley L.J. said: "I think that under the old law Mr. Pooley would have taken by force of this clause such an interest as would have made him incompetent as a witness to the execution of the will. The policy of the Act was to leave the will good and to make void the gift which would have made the witness incompetent" (1888) 40 Ch D, at p 4 . Before 1752 it was necessary under s. 5 of the Statute of Frauds that a will of real estate should be in writing and attested in the presence of the testator by three or four credible witnesses. It is to this law apparently that Lindley L.J. refers. The courts of common law would not allow any witness as "credible" whose competence was affected by interest, with the result that a witness who took any benefit under the will was disqualified, even a creditor, if the will happened to charge debts on realty. Unless there were a sufficient number of other witnesses to a will of realty who were competent, the will failed altogether as a result of the interest of the witness. To remedy this s. 25 geo. II, c. 6, was enacted containing a provision in terms which s. 15 of the Wills Act 1837 repeats, except that s. 15 includes the husband or wife of the witness and refers to the validity or the invalidity of the will as an issue upon which the witness may testify as well as due execution. The statute 25 Geo. II., c. 6, related only to wills of realty (Brett v. Brett (1826) 3 Add 210 (162 ER 456) ). Apparently Lindley L.J. considered that the kind of interest to which s. 15 applied should be construed widely in light of the strictness of the law as to competency for the purposes of s. 5 of the Statute of Frauds. The words of s. 15 are undoubtedly wide. They refer to a witness to the will to whom or to whose wife or husband any beneficial devise legacy estate interest gift or appointment of or affecting any real or personal estate (other than and except charges and directions for the payment of any debt or debts) shall be thereby (that is, by the will) given or made. What is to be "utterly null and void" is described as "such devise legacy estate interest gift or appointment". The width of the application is not lessened by the express exception of charges of debts which under the old law sufficed to make creditors incompetent as witnesses to the will, rather the contrary, as Chitty J. remarked in In re Barber (1886) 31 Ch D, at p 670 . But even so these decisions do seem to mean that the provision authorizing professional charges gave a beneficial interest to the trustee. But, supposing the benefit of the clause may properly be so described, that is a long distance from saying that on death part of the net balance of the estate consisted of property which did not pass to the widow and children because it was disposed of to the solicitor trustee. (at p510)

8. Three years after In re Pooley (1888) 40 Ch D 1 was decided it was used in the Court of Appeal in what appears to me to be a case of a somewhat different description, but one which turned upon liability for legacy duty, the matter referred to and reserved by Cotton L.J. in In re Pooley (1888) 40 Ch D 1 . The case is In re Thorley; Thorley v. Massam (1891) 2 Ch 613 . What makes it a case of a different description is the character of the provision in the will. The will contained a trust to carry on the testator's business. The trustees were to carry on the business in conjunction with his son W.R. Thorley. The will declared that while the trustees were carrying on the business each of them should receive the annual sum of 250 pounds out of the profits thereof and if the profits exceeded a certain standard in a year 500 pounds in lieu of the 250 pounds. The will went on to declare that while W.R. Thorley managed the business in conjunction with the trustees he should be entitled to the said annual sum of 250 pounds more as also to 500 pounds in event of such increase of profit. By s. 4 of 8 & 9 Vict., c. 76, legacy duty was chargeable upon every gift by will which by virtue thereof is payable or has effect or is satisfied out of the personal or movable estate or out of any personal estate which such person had power to dispose of whether the gift is by way of annuity or in any other form: Halsbury's Laws of England, 2nd ed., vol. 13, p. 308. A gift by will with a condition annexed is liable to legacy duty without regard to the condition: ibid. In In re Thorley (1891) 2 Ch 613 the direction that the trustees and W.R. Thorley should receive 250 pounds or 500 pounds each while managing the business was held to amount to a gift subject to a condition; the gift was liable to legacy duty. It is to be noticed that where the value of any benefit given by any will can only be ascertained from time to time by the actual fund allotted for the purpose, the duty is to be charged upon the sums or effects applied from time to time as separate and distinct legacies: Halsbury's Laws of England, 2nd ed., vol. 13, p. 323. It is not necessary, therefore, to attempt to ascertain the value of the benefit as at the time of death, though if it had been necessary it would have been possible to treat the payments as annuities and compute their present value disregarding the condition, cf. Halsbury's Laws of England, 2nd ed., vol. 13, at p. 322. The decision was placed upon the definite ground that there was a gift of an annual sum subject to a condition and that that was a legacy for the purpose of duty. Once the direction was so interpreted none of the difficulties could arise which would exist if it were sought to assess legacy duty upon the benefit conferred by a provision merely authorizing a solicitor trustee to charge profit costs for legal work done for the estate. Both Green on Death Duties, 2nd ed. (1947) and Hanson on Death Duties, 9th ed. (1946), at p. 489 say that in practice legacy duty is not claimed in respect of a provision entitling the executor to profit costs or other professional fees. (at p511)

9. But Lindley L.J. did say (1891) 2 Ch, at p 624 that if the trustees had been able to charge the estate of the testator for their services it would alter the question very materially and he referred to In re Pooley (1888) 40 Ch D 1 as standing in the way of a decision in their favour. His Lordship, however, perceived that this observation had no application to W.R. Thorley. The decision of the whole case, therefore, went on grounds independent of the disqualification of the trustees from receiving remuneration and of the effect of the clause in removing the incapacity. (at p511)

10. Another aspect of the operation and incidents of a clause authorizing a solicitor trustee to charge profit costs or a trustee to charge remuneration for work done in managing a business formed the subject of three English cases and an Irish case. They are In re White; Pennell v. Franklin (1898) 1 Ch 297; (1898) 2 Ch 217 ; Re Salmen; Salmen v. Bernstein (1912) 107 LT 108 ; Re Brown; Wace v. Smith (1918) 62 Sol Jo 487; (1918) WN 118 ; and O'Higgins v. Walsh (1918) 1 IR 126 . These cases deal with the question of the order in which a claim under such a clause ranks when the assets prove insufficient to pay the creditors of the testator in full and again when the assets are sufficient to pay the creditors but not to pay the legacies in full. The first of these cases, viz., In re White (1898) 1 Ch 297; (1898) 2 Ch 217 related to a claim for profit costs made by a solicitor who was sole proving executor. The estate was being administered by the court and was insolvent. The will contained a clause authorizing him to charge costs notwithstanding his acceptance of the office of executor and trustee. It was decided that the creditors came first. The decision was based upon In re Barber (1886) 31 Ch D 665 ; In re Pooley (1888) 40 Ch D 1 and In re Thorley (1891) 2 Ch 613 . Lindley M.R. said: "It is impossible to get over the authorities and the principles on which they are based" (1898) 2 Ch, at p 218 and Chitty L.J. said: "The declaration made by the testator is bounty on his part. No one can claim bounty until the creditors are satisfied" (1898) 2 Ch, at pp 218, 219 . In spite of these observations it will be seen that the question really was whether the costs claimed could be considered costs incurred by the executor in administering the estate and so having priority to creditors of the testator. Apart from the clause they could not have been so considered and it would be difficult on ordinary principles for a provision of the will to operate to the prejudice of creditors of the testator. (at p512)

11. The second of these cases, Re Salmen (1912) 107 LT 108 , turned on a clause authorizing trustees to employ one of their number as a manager of the testator's business and to pay him a salary. They did so employ one of their number at a salary of 300 pounds per annum. An administration order was made in a creditor's suit. It was expected that the estate would prove insolvent and the creditors of the testator objected to the allowance in the accounts of the trustees of the salary, that is, in priority to their debts. The creditors do not appear to have consented to the business being carried on and unless it was being carried on only for the purpose of winding up, it is difficult to see how any claim arising from carrying it on could have priority over creditors. The principles governing such a situation are explained in Vacuum Oil Co. Pty. Ltd. v. Wiltshire [1945] HCA 37; (1945) 72 CLR 319, at pp 324, 335, 336 . But the decision in Re Salmen (1912) 107 LT 108 was put upon In re White (1898) 1 Ch 297; (1898) 2 Ch 217 . (at p512)

12. The third case, Re Brown; Wace v. Smith (1918) 62 Sol Jo 487; (1918) WN 118 was one in which there was enough to pay creditors in full but not legatees. It was held that costs chargeable by a solicitor-executor under a provision in the will must abate pari passu with legacies. The Irish case, O'Higgins v. Walsh (1918) 1 IR 126 , presented a similar state of fact and a like decision was given. (at p512)

13. Still another aspect of the operation of clauses authorizing solicitor-trustees to charge profit costs was discovered in an attempt to use some of the foregoing cases to establish that the amount received was not to be taxed as part of the annual gains of a profession. In Jones v. Wright (1927) 44 TLR 128; 13 Tax Cas 221 Rowlatt J. rejected this contention, which perhaps might have been thought to follow from the view that the clause amounted to a gift. He said that it was the liberation from the rule against profiting from a trust that was the bounty and that the bequest was of remuneration as remuneration earned and must be so treated for the purposes of the income tax: see further Watson v. Blunden (1933) 18 Tax Cas 402 . The view taken by Rowlatt J. is not, I think, consistent with an interpretation of the previous authorities which would make them mean that the clause involved a passing of property as at death. (at p513)

14. Those authorities have never obtained universal or even very general acceptance. Hanson on Death Duties, 9th ed. (1946), at p. 488, says that if the effect of the will is merely to authorize the executor to make professional charges for services rendered to the estate by himself in the character of, for instance, a solicitor or a land agent or to receive a salary or commission for doing what he might otherwise employ an agent to do . . . this might be thought not to amount to a legacy but merely to prevent the operation of the rule of equity that an executor or trustee shall not make his office a source of profit and thus enable him to charge for services which, in the absence of such direction, he would be bound to render gratuitously. This passage is followed by a statement of the effect of In re Barber (1886) 31 Ch D 665 ; In re Pooley (1888) 40 Ch D1 ; In re White (1898) 1 Ch 297; (1898) 2 Ch 217 and Re Brown (1918) 62 Sol Jo 487; (1918) WN 118 . Sir Arthur Underhill contented himself with a statement that whether these cases can be supported on principle is respectfully questioned: Underhill's Law of Trusts and Trustees, 6th ed. (1904), p. 326. (at p513)

15. The decision in In re Brown; Wace v. Smith (1918) 62 Sol Jo 487; (1918) WN 118 provoked a note by Mr. A.H. Hastie in (1919) 35 Law Quarterly Review 208, attacking the authorities which bound Eve J. to decide that case as he did. The note contains this passage:- "But it often happens that the creator of a trust, or the maker of a will, desires that the professional man or business manager who has theretofore been employed by him for reward shall continue so to be employed by his trustees or executors, and when, by the use of apt words, he authorizes this the charges which are earned differ in no way from the charges of any other professional man - they are not a gift or a bounty or a legacy - they are earned money; all that the testator has done is to declare that a certain rule of restraint shall not apply." (at p513)

16. The cases are, in my opinion, very unsatisfactory. Possibly In re Barber (1886) 31 Ch D 665 and In re Pooley (1888) 40 Ch D 1 can be justified on a very wide construction of s. 15 of the Wills Act 1837 attributable to the history of the law relating to witnesses of wills of realty. In re Thorley (1891) 2 Ch 613 is based on an interpretation of the will as giving a legacy on a condition and if that construction of the provision of the will be accepted the decision is open to no criticism, but it is then not in point. In re White (1898) 1 Ch 247; (1898) 2 Ch 217 , Re Salmen (1912) 107 LT 108 , Re Brown (1918) 68 Sol Jo 487; (1918) WN 118 and O'Higgins v. Walsh (1918) 1 IR 126 may be supported, for the reasons I have given, as correct in principle, whether or not the clause amounts to a legacy or gift. (at p514)

17. It would, I think, be a further extension of what was exactly decided in any of the cases discussed to hold that such a clause as that now in question involved a passing of property at death otherwise than to the beneficiaries taking under the dispositive provisions of the will. Whatever else may be said about the decisions clearly their application should not be extended. Indeed I think that it may fairly be said that if the cases discussed require as a logical consequence that such a clause should be considered as involving the passing as at death of property, then it is a reductio ad absurdum of the decisions. (at p514)

18. For these reasons I think that the cross-appeal should be allowed. For the answer given in the Supreme Court to the fifth question in the case stated there should, in my opinion, be substituted the answer "on no part thereof". (at p514)

McTIERNAN, WILLIAMS and WEBB JJ. Prepared by Williams J. . This is an appeal by leave and cross-appeal by special leave from an order of the Full Supreme Court of New South Wales made on 30th October 1950 n a case stated for the opinion of that Court under the provisions of s. 124 of the Stamp Duties Act 1920-1949. Apart from a question as to costs, the case stated six questions for the opinion of the court, but only two, Nos. 1 and 5, were answered, and Nos. 2, 3, 4 and 6 were ordered to stand over generally. The case was stated by the Commissioner of Stamp Duties, the appellant in this Court, upon the requisition of the present respondents who are the personal representatives of the estate of H.A.B. Pearse, who died on 19th February 1946. (at p514)

2. One of the respondents, T.A. Langley, is a solicitor of the Supreme Court. The will of the deceased, cl. 13, declares that "the said Thomas Archdall Langley or any Trustee for the time being of this my Will being a solicitor or other person engaged in any profession or business shall be entitled to charge retain and be paid all usual professional or other charges for business or acts done by him or his Firm in relation to the trusts hereof and also his reasonable charges in addition to disbursements for all work and business done and all time spent by him or his Firm in connection with matters arising in the premises including all acts or business which might or should have been attended to in person by a Trustee not being a Solicitor or other professional person but which such Trustee might reasonably require to be done by a Solicitor or other professional person." (at p515)

3. Included in the estate of the deceased are 800 "A" cumulative 5 per cent preference shares, each fully paid to 8 pounds and 2,986 "B" ordinary shares each fully paid to 8 pound in Plashett Pastoral Co. Pty. Ltd. This company was incorporated in 1913 under the Companies Act 1899 (N.S.W.), principally to acquire a station property called Plashett, then owned by the father of the deceased. It became a proprietary company on 21st June 1937. As Street C.J. said, in his reasons for judgment, "The company was a family company in every sense of the term, the articles placing restrictions and limitations on the right to transfer shares and containing other provisions designed for the purpose of keeping the company in the hands of the various members of the family who were shareholders. It duly acquired the station property in 1913, and ever since has run the same as a pastoral business" (1950) 51 SR (NSW), at p 52; 68 WN 45 . The nominal capital of the company is 72,000 pounds divided into 9,000 shares of 8 pounds each. Of this capital 64,056 pounds had been subscribed at the date of the death of the deceased and comprised the 800 fully paid "A" cumulative preference shares already mentioned and 7,207 fully paid "B" ordinary shares. The company is thoroughly solvent. In the year ended 30th June 1942 the company made a net profit of 2,304 pounds 3s. 9d. in the year ended 30th June 1943, 2,761 pounds 5s. 11d. in the year ended 30th June 1944, 3,638 pounds 19s. 5d. in the year ended 30th June 1945, 1,006 pounds 3s. 7d., a total for these four years of 9,710 pounds 12s. 4d. In the year ended 30th June 1946 the company made a net profit of 5,191 pounds. There is no indication whatever that the shareholders have ever desired that the company should go into voluntary liquidation and no shareholder holds sufficient shares to pass a special resolution for that purpose. (at p515)

4. The respondents submitted to the Commissioner a valuation of the shares prepared by a firm of chartered accountants in which the average annual profits of the four years ended 30th June 1945 already mentioned, less a loss of 2,253 pounds 7s. 5d. made in the year ended 30th June 1941 were capitalized at seven per cent. On this basis the accountants valued the 800 preference shares at their face value and the ordinary shares at 2 pounds 6s. 6d. The Commissioner accepted the valuation of the preference shares, but refused to accept that of the ordinary shares. He proceeded to value the shares in accordance with s. 127(1)(c) of the Act. On this basis he estimated the value of the ordinary shares at 7 pounds 16s. 10d. per share and added to the final balance of the estate as returned by the respondents the sum of 16,472 pounds 15s. 4d., this being the difference between 2 pounds 6s. 6d. per share and 7 pounds 16s. 10d. per share on the 2,986 "B" ordinary shares in the company held by the deceased. (at p516)

5. By his will the deceased left the whole of his estate to his widow and lineal issue. The Seventh Schedule of the Act imposes different rates of duty on so much of the final balance of the estate as consists of property falling within the four columns therein set out. The property left to the widow and lineal issue is comprised in the first column on which the rate of duty is the lowest. The Commissioner assessed the whole of the final balance of the estate at the rate appropriate to property in this column, except the sum of 250 pounds, which he assessed at the rate of duty provided for property in the fourth column which attracts the highest rate. The sum of 250 pounds was a pre-estimate agreed upon between the Commissioner and the respondents of the amount of legal costs payable by the estate to the firm of solicitors in which Langley is a partner for past and future legal work performed by Langley for the estate. (at p516)

6. The respondents were dissatisfied with the assessment of the estate for duty in two respects: (1) the valuation of the "B" ordinary shares in the company, and (2) the placing of 250 pounds in the fourth column of the Seventh Schedule. It was in respect of these matters that the questions in the case stated were asked. The questions are as follow: (1) Whether in valuing the 2,986 "B" ordinary shares in the company the Commissioner was justified in exercising the discretion conferred upon him by s. 127(1)(c) of the Stamp Duties Act 1920-1940 to value such shares upon a liquidation basis. (2) If question (1) be answered in the affirmative whether the Commissioner was justified in fixing the value of such shares at 7 pounds 16s. 10d. per share as at the date of death of the testator. (3) If question (1) be answered in the affirmative and question (2) in the negative what was the value of such shares at the date of death of the testator. (4) If question (1) be answered in the negative whether the "B" ordinary shares in the company are of the value of 2 pounds 6s. 6d. or if not what was their value as at the date of the testator's death. (5) Whether by reason of cl. 13 of the testator's will duty at the rate set out in the fourth column of the Seventh Schedule to the Act should be assessed on: (a) the full amount of 250 pounds; (b) such amount less office overhead expenses; (c) the executor-solicitor's share of such full amount; (d) the executor-solicitor's share of the full amount less his proportion of overhead expenses; or (e) no part thereof. (6) Whether the amount of duty chargeable on the said estate was 7,112 pounds 9s. 0d., or, if not, what other sum. The Supreme Court answered the first question "No", and the fifth question "the full amount of 250 pounds". (at p517)

7. The first question is so framed as to make it appear that the Commissioner is asking the Court to decide whether it was proper for him to value the shares in accordance with par. (c) of s. 127(1) of the Act, but it is apparent from the judgments of the Supreme Court, and the same attitude was adopted in this Court, that the real contest between the parties to which the question is directed is whether the Court has jurisdiction to substitute its own discretion for that of the Commissioner as to the mode of valuation to be adopted. It was submitted for the Commissioner here, as it was submitted below, that the Act confers on him a discretion which can only be disturbed by the Court if the Court is of opinion that he has failed to exercise his discretion properly so that it is in law not an exercise of his discretion at all. The approach of the Privy Council in Pioneer Laundry and Dry Cleaners Ltd. v. Minister of National Revenue (1940) AC 127 ; Minister of National Revenue v. Wrights' Canadian Ropes Ltd. (1947) AC 109 ; and D.R. Fraser & Co. Ltd. v. Minister of National Revenue (1949) AC 24 ; and of this Court in MacCormick v. Federal Commissioner of Taxation (1945) 71 CLR 283 ; and Denver Chemical Manufacturing Co. v. Commissioner of Taxation (N.S.W.) [1949] HCA 25; (1949) 79 CLR 296 was particularly relied upon. If those cases are in point they must be followed, but it appears to us, as it appeared to the Supreme Court, that they are distinguishable. (at p517)

8. There can be no question that if the statute intends that a discretion shall be exercised by a particular person and not by the Court, the jurisdiction of the Court is confined to supervising its exercise so as to ensure that it is exercised according to law. The statute in such a case makes the particular person the sole judge of the existence or non-existence of the fact or other matter upon which the right or liability of the subject depends and the Court is not at liberty to substitute its own opinion for his. If s. 127(1)(c) of the Stamp Duties Act means that the Commissioner is to be the sole judge of the appropriate method to adopt in valuing shares in a company not listed on a stock exchange, then the Court, in exercizing its powers under s. 124, cannot interfere unless it can be shown that the Commissioner has acted in contravention of some principle of law. For, to be effective, the discretion must be exercised, in the words of Lord Macmillan delivering the judgment of the Privy Council in D.R. Fraser & Co. Ltd. v. Minister of National Revenue (1949) AC, at p 36 , "bona fide, uninfluenced by irrelevant considerations and not arbitrarily or illegally". (at p518)

9. It was not contended for the Commissioner that the Court was bound to accept the amount of the valuation arrived at on the basis of par. (c). It was admitted that the notional sums attributed to the shares by the Commissioner upon the hypothetical winding up were fully examinable. Its hands were tied only to the extent that it could be directed by the Commissioner to adopt the mode of valuation prescribed by the paragraph. This attitude of counsel for the Commissioner seems somewhat inconsistent. The paragraph would seem to protect the opinion of the Commissioner as to the sums the shares would realize on a liquidation to the same extent as his discretion to adopt this mode of valuation. There is no halfway house. Either each and every activity of the Commissioner under the paragraph is subject to complete judicial review under s. 124, or each and every activity can only be reviewed to the same limited extent. (at p518)

10. When the wide powers conferred upon the Court by s. 124 are considered it is apparent, we think, that it was intended to make the decision of the Commissioner to adopt the paragraph subject to complete judicial review. Section 124 contains elaborate provisions for ascertaining all the facts necessary to enable the questions submitted to be determined, and sub-s. 4 provides that on the hearing of the case the Court shall determine the question submitted and shall assess the duty chargeable and also decide the question of costs. Duty is payable upon the final balance of the estate, and s. 105 provides that the final balance of the estate of a deceased person shall be computed as being the total value of his dutiable estate after making such allowances as are thereinafter authorized in respect of the debts of the deceased. It also provides that, save as in this Act expressly provided, the value of the property included in his dutiable estate shall be estimated as at the date of the death of the deceased. If the duty is imposed upon the Court of itself assessing the duty chargeable, it seems to us necessarily to follow that the Court must itself value the property included in the dutiable estate. That does not mean of course that the Court must value every item. It is only concerned with the items of value which are in dispute. (at p519)

11. Before the introduction into the Act of s. 127 the Court clearly had this responsibility. The main purpose of introducing s. 127(1) would appear to have been notionally to standardize the memoranda and articles of association of companies to the extent required by pars. (a) and (b). (at p519)

12. Before par. (c) was introduced, shares of companies not listed on the stock exchange had been in rare instances valued on the basis there prescribed. The paragraph may have been added as a safeguard against a suggestion that the mandatory character of pars. (a) and (b) indicated an intention that shares should be valued as shares in a going concern, and it was no longer open to the Commissioner in a proper case to value shares not registered on a stock exchange on the basis of a hypothetical winding up. Be that as it may, it appears to us that there is no sufficient indication in the paragraph of the capricious intention that the Court should remain under the duty of deciding a dispute between the subject and the Commissioner as to the value of such shares, but should be handcuffed to the particular mode chosen by the Commissioner. The essential problem is to ascertain the real value of the shares, and the selection of the mode of valuation is simply one of the elements that enter into the calculation. The Commissioner is not required to adopt the mode prescribed by s. 127(1)(c). His discretion as to any particular mode is as untrammelled as before. The paragraph does not mention the Court. It is not, like par. (a), stated to be for the purposes of the Act. It relates to the discretion of the Commissioner in performing his administrative duties under the Act. It has no application to the jurisdiction of the Court in performing its judicial functions under s. 124. Adapting the words of this Court in Commissioner of Stamp Duties (Q.) v. Beak (1931) 46 CLR, at p 597 , clear words would be needed to withdraw from the general power of review given by s. 124 a particular process in making up the assessment essential to the result. (at p519)

13. It is therefore unnecessary to consider whether, if the jurisdiction of the Court was confined to inquiring whether the Commissioner had exercised his discretion properly, in view of the express authority conferred by s. 127(1)(c) it could be said that he had failed to do so. We agree with the Supreme Court that the mode prescribed by this paragraph for valuing the ordinary shares in Plashett Pastoral Co. Pty. Ltd. is not a proper mode. The usual mode of valuing shares in a company which is a going concern has been established by many judicial decisions, several of which are decisions of this Court. We refer in particular to the decision of the majority of the Full Court in Commissioner of Succession Duties (S.A.) v. Executor Trustee and Agency Co. of South Australia Ltd. [1947] HCA 10; (1947) 74 CLR 358 . The law has been recently stated in the House of Lords to the same effect. We refer to a passage in the speech of Lord Simon in Gold Coast Selection Trust Ltd. v. Humphrey (1948) AC 459, at pp 472, 473 concurred in by Lords Thankerton, Uthwatt and Du Parcq. To value shares in a company which is a going concern on the basis that the company is in voluntary liquidation at the date of death savours of unreality. The choice of such a mode is not calculated to produce a fair value. It is more likely to produce a false value. Scope for the use of the provision contained in s. 127(1)(c) may be found in cases where a company's operations do not produce income which can be regarded as affording any measure of the value of the shares, as well may be the case with an assets company or a company whose earning capacity is restricted or diminishes temporarily or by accidental circumstances. Other special cases may be imagined. (at p520)

14. The appeal should be dismissed. (at p520)

15. The cross-appeal remains for consideration. It raises the question of the legal effect of a provision in a will that a solicitor who is a trustee may nevertheless charge profit costs. It is a maxim of equity that a trustee shall not make a profit out of his trust. But this incapacity can be modified or removed by the creator of the trust or the unanimity of the beneficiaries, provided that they are all sui juris. The effect of the provision would therefore appear to be to create a capacity in a trustee to make a profit which would not otherwise exist. To earn the profit the solicitor must still do the necessary work, and it is difficult to see how the fruits of his personal exertion are in any true sense derived from the bounty of the testator. But it has been so decided in several cases, including In re Barber (1886) 31 Ch D 665 ; In re Trotter (1899) 1 Ch 764 ; Re Brown (1918) 62 Sol Jo 487; (1918) WN 118 ; O'Higgins v. Walsh (1918) 1 IR 126 ; (decisions of single judges); In re Pooley (1888) 40 Ch D 1 ; In re Thorley (1891) 2 Ch 613 ; In re White (1898) 2 Ch 217 ; Re Salmen (1912) 107 LT 108 (decisions of the Court of Appeal). In In re Barber (1886) 31 Ch D 665 and In re Pooley (1888) 40 Ch D 1 it was held that a solicitor who witnessed a will containing such a clause lost its benefit under s. 15 of the Wills Act 1837 (s. 13 of the Wills, Probate and Administration Act 1898-1947 (N.S.W.)). In In re Barber (1886) 31 Ch D 665 , Chitty J. said:- "It is clear, the matter standing in the position I have stated, that the executor could not have charged for his personal services. But, says the executor, there is a clause in the will which enables me to do it. What is that? It is bounty. It must be a gift to the executor out of the assets of the testatrix which enables him to take that which the law does not allow. I cannot conceive that the case can be put on any other footing" (1886) 31 Ch D, at p 670 . In In re Pooley (1888) 40 Ch D 1 Cotton L.J. said:- "As regards the Appellant we have only to consider whether this direction is not in substance a gift to him of so much of the estate as is required to pay the profit costs, and therefore void. It is urged that it is not a gift, for that he has to work for what he receives. That is true, but the clause gives him a right which he would not otherwise have to charge for the work if he does it, and that, in my opinion, is a beneficial gift within the meaning of the section" (1888) 40 Ch D, at p 4 . Lindley L.J. said: "Apart from this clause, Mr. Pooley could not get anything out of the estate for his services, and I cannot say that a clause which enables him to get something out of the estate is not a gift to him within the meaning of the 15th section" (1888) 40 Ch D, at pp 4, 5 . In In re White (1898) 1 Ch 297 , in the Court below, Kekewich J. said that the right to charge profit costs is "the same thing as a gift, of, say, 100 pounds: there is no difference whatever between a gift of profit charges and a gift of 100 pounds. In my opinion it is a legacy, and chargeable as such with legacy duty" (1898) 1 Ch, at p 299 . On appeal Lord Lindley said "it is impossible to get over the authorities and the principles upon which they are based" (1898) 2 Ch, at p 218 . In In re Brown (1918) 62 Sol Jo 487; (1918) WN, at p 118 Eve J. said: "The effect of the declaration in the will enabling the solicitor to charge for professional services was a bequest to him of a legacy conditional upon his doing the work; the amount of the legacy would be ascertained when the work had been done and the profit-costs arrived at. It was nothing more or less than a bequest to the solicitor of that sum, ultimately to be ascertained". (at p521)

16. These authorities and the principles on which they are based all indicate a concluded view in the English Courts, short of the House of Lords, that moneys which become payable to a trustee pursuant to such a declaration in a will are a beneficial gift to him of the same nature as the other beneficial dispositions of the will. The trustee is not a creditor but a beneficiary, so that if the estate is insolvent his gift fails and if the estate is insufficient to pay him and the general pecuniary legacies in full the amount owing to him must abate ratably with these legacies. The benefit is equally a gift whether the amount payable to the trustee for his services is fixed by the will or subsequently ascertained by the doing of the work. (at p522)

17. Unless we refuse to follow these cases it necessarily follows that the amount of 250 pounds in dispute is property which falls within the fourth column of the Seventh Schedule of the Stamp Duties Act. Although not bound to follow decisions of the Court of Appeal, this Court in general does so in questions of law and equity common to both countries where the decisions of the Court of Appeal appear to have settled the law, so that the law in Australia may be kept in line with the law in England (Waghorn v. Waghorn [1942] HCA 1; (1942) 65 CLR 289 ; Piro v. W. Foster & Co. Ltd. [1943] HCA 32; (1943) 68 CLR 313 ). In the present case the decisions of the Court of Appeal have stood for a long time and appear to have settled the law. They were applied to income tax appeals in Baxendale v. Murphy (1924) 2 KB 494 and Hearn v. Morgan (1945) 2 All ER 480 . The decision of Rowlatt J. in Jones v. Wright (1927) 44 TLR 128 was relied upon as throwing some doubt upon their correctness. In that case his Lordship said that all that a solicitor gets under the clauses which give him power to charge is the removal of a disability which would otherwise prevent him from entering into an ordinary contract of service with the trustees in consideration of remuneration. His Lordship went on to point out that he thought that the solicitor in that case had entered into such a contract, that the remuneration formed part of his income and must be treated as profits and earnings arising from his employment as a solicitor. He said that he did not think the cases meant that a bequest of profit costs is a bequest of a bounty which is not earned. We do not think that these remarks throw any doubt upon the correctness of the decisions in question. His Lordship was dealing with the matter from a different angle. Gifts under wills, although payable out of the capital or partly out of the capital of the estate, may be income for the purposes of income tax. In Australia profit costs earned by a solicitor, although payable out of the capital of the estate, would be income from personal exertion within the meaning of the Income Tax Assessment Acts. They would still be taxable to the same extent, whether the solicitor was a trustee of the will or not. But if he was a trustee and was authorized by the will to charge such costs he would, according to the cases, be the recipient of a bounty from the testator because, apart from the authority, he would be bound to do the work, if he chose to do it, for nothing. (at p523)

18. It was also submitted that a direction such as the present direction applying not only to a named trustee but to any other trustee for the time being of the will would in the case of such other trustee infringe the rule against perpetuities because the bounty might not vest within a period of a life or lives in being and twenty-one years. It is premature to discuss this interesting point while Langley is acting as the solicitor to the estate. As, however, the bounty is in essence a dispensation resulting in the trustee acquiring the capacity to make a profitable contract of employment, and the rule against perpetuities does not apply to contracts, it would not appear to be sound. (at p523)

19. Lastly it was submitted that if the amount of profit costs exceeded the original estimate from time to time the Commissioner could re-assess the estate for further duty from time to time under s. 128 of the Act. But the bounty is an interest which is capable of valuation and must, subject to s. 125A of the Act, be actuarily valued as at the date of death. Once this has been done and duty paid on that value, the duty has been fully assessed and paid and there is no room for the operation of s. 128. (at p523)

20. The cross-appeal should also be dismissed. (at p523)

FULLAGAR J. With regard to the appeal in this case, I have read the judgment of McTiernan, Williams and Webb JJ. and am content to say that I agree with it. The cross-appeal raises an entirely distinct question. The amount of duty involved is very small, but the question is of some general importance and may affect duty under State Acts other than that of New South Wales. It turns on the effect of certain words in the Seventh Schedule to the Stamp Duties Act 1920-1949 (N.S.W.), but it is necessary to refer first to the will of the testator. (at p523)

2. The testator appoints as his executors and trustees the Perpetual Trustee Co. Ltd., his wife (Hazel May Pearse) and Thomas Archdall Langley of Sydney, solicitor. He gives a legacy of 500 pounds to his wife, and devises and bequeaths all the residue of his estate to his trustees upon certain trusts for his widow, children and grandchildren. The trusts for the widow and children are the statutory "protective trusts", and corpus is ultimately distributable to grandchildren per stirpes. The will concludes with the following provision: - "I declare that the said Thomas Archdall Langley or any Trustee for the time being of this my Will being a solicitor or other person engaged in any profession or business shall be entitled to charge retain and be paid all usual professional or other charges for business or acts done by him or his Firm in relation to the trusts hereof and also his reasonable charges in addition to disbursements for all work and business done and all time spent by him or his Firm in connection with matters arising in the premises including all acts or business which might or should have been attended to in person by a Trustee not being a Solicitor or other professional person but which such Trustee might reasonably require to be done by a Solicitor or other professional person." It is to be observed that this clause applies not only to Mr. Langley, who is a solicitor and who joined with the other two named executors in proving the will, but to any professional person who may at any time become an executor or trustee of the will. It may apply to another solicitor or to a barrister, an accountant, a taxation consultant or a stock-broker - the will, it may be noted, authorizes investment in the shares of public companies. (at p524)

3. Section 101D of the Act provides that, in the case of a person domiciled (as this testator was) in New South Wales, duty at the rates mentioned in the Seventh Schedule shall be assessed and paid on the "final balance" of his estate. In this case the final balance was assessed at 47,333 pounds. The Seventh Schedule is divided into four columns. The first column deals with "so much of the final balance of the estate as consists of property which passes under the will or devolves upon the intestacy of the deceased to the widow or lineal issue of the deceased", and imposes duty thereon at the rate of fifteen per cent. The contention of the executors in the present case is that the whole of the final balance of the estate falls within the first column, and that duty is payable on the whole at the rate of fifteen per cent. The second column deals with "so much of the final balance of the estate as consists of property which passes under the will or devolves upon the intestacy of the deceased to the widower, lineal ancestor, brother or sister or issue of a brother or sister of the deceased", and imposes duty at the rate of seventeen per cent. This column has, of course, no application to the present case. The third column deals with "so much of the final balance of the estate as consists of property which passes under the will of the deceased to or for the benefit of" certain classes of charitable objects, and imposes duty at the rate of thirteen and three-quarters per cent. This column also, of course, has no application to the present case. The fourth column deals with "so much of the final balance of the estate as consists of property not otherwise provided for in the first, second or third columns of this Schedule," and imposes duty at the rate of twenty per cent. The contention of the Commissioner is that the effect of cl. 13 of the will, which I have set out above, is to bring some part of the final balance of Mr. Pearse's estate within the fourth column of the Seventh Schedule and subject it to duty at the rate of 20 per cent. Faced with the question "what part?", the Commissioner might well have felt himself completely baffled, but par. 20 of the case stated under s. 124 of the Act says:- "It has been agreed between the executors and the Commissioner for the purposes of the assessment of Death Duty herein that the legal costs payable by the estate for past and future legal work should be deemed to be of the value of 250 pounds". The Commissioner has assessed duty on 47,083 pounds of the final balance at the rate of 15 per cent, and on 250 pounds of the final balance at the rate of 20 per cent. The difference between his view and that of the executors is thus 12 pounds 10s. 0d. It may be noted in passing that cl. 13 of the will is not concerned merely with legal costs. It is obviously impossible to place anything remotely resembling a valuation on the professional fees of various kinds which might be earned and allowed under it. (at p525)

4. What "passes" under the will to different objects mentioned in the Seventh Schedule has to be determined as at the death of the testator, and the value of what "passes" has also to be determined as at the death of the testator. In my opinion, the entire beneficial interest in the estate in this case passed on death to the widow and lineal issue of the testator, and the case therefore falls entirely within the first column of the Schedule. The actual amount, whether corpus or income, which actually reaches the hands of the beneficiaries, will be affected by various outgoings which will become payable in the course of the administration of the estate. There will be testamentary expenses, there will be death duties to pay, and corpus and income commission will be payable to the trustee company and perhaps to the other trustees. There may be professional charges to pay from time to time out of corpus or out of income. These too will be outgoings in the administration of the estate, and their nature will not differ whether they become payable to a professional man who is, or to a professional man who is not, a trustee of the estate. All these things are to be ignored for the purposes of assessing duty under the statute, which simply takes the net estate or final balance - assets less debts owing by the testator - and asks to what persons the beneficial interest in that net estate passes under the will. (at p525)

5. The contention of the Commissioner that something "passes" to somebody under cl. 13 of the will in this case would indeed seem to need only to be stated to be seen to be fallacious, if it were not for certain authorities on which he relies, and which it is necessary to consider. The actual decisions in the cases have no bearing on the construction of the New South Wales Act, but what is said in some of them has been put as giving countenance to the argument for the Commissioner. (at p526)

6. In In re Barber; Burgess v. Vinnicome (1886) 31 Ch D 665 the testatrix appointed one Harmer, who was a solicitor, to be one of her executors, and declared that "the said H.R. Harmer shall be entitled to charge and to receive payment for all professional business to be done by him under this my will in the same manner as he might have done had he not been an executor" (1886) 31 Ch D, at p 666 . Harmer witnessed the will. Chitty J. held that the declaration of the testatrix gave to Harmer what was "in effect bounty on the part of the testatrix", that it gave him "an interest, legacy, gift or appointment" (1886) 31 Ch D, at p 670 within the meaning of s. 15 of the Wills Act 1837, and that it was accordingly avoided by that section. This decision was approved by the Court of Appeal in In re Pooley (1888) 40 Ch D 1 . (at p526)

7. The next case cited was In re Thorley (1891) 2 Ch D 613 , in which the Court of Appeal affirmed the decision of North J. A testator directed his trustees to carry on a business in conjunction with his son, and declared that the trustees, while carrying on the business, should receive the annual sum of 250 pounds out of the profits thereof, and that, while the son should be managing the business in conjunction with the trustees, he should receive the sum of 250 pounds "more" (i.e., presumably in addition to the salary at which he was employed by the trustees). The amount was subject to increase according to the profits. It was held that each sum paid was a legacy within the meaning of the Legacy Duty Acts and liable to duty accordingly. I should have thought that this case had no bearing whatever upon the present, if only because the sums paid to the son (who was not a trustee) were held to stand on the same footing as those paid to the trustees. There was previous authority for saying that sums given upon condition or upon a consideration to be performed by the donee were legacies within the meaning of the Act. The case of In re Pooley (1888) 40 Ch D 1 was, however, referred to as bearing on the case of the trustees, though not, of course, on the case of the son. There are other dispositions by will which attract legacy duty in England on payment, although they are clearly not legacies in the ordinary sense, e.g., payments by trustees under a discretionary trust to apply moneys for maintenance: see Attorney-General v. Wade (1910) 1 KB 703, at p 711 . (at p527)

8. It has also been held in England that a solicitor-trustee who is authorized by a will to charge profit costs cannot, if the estate is insolvent, compete with creditors, and must, if the estate, though solvent, is insufficient to satisfy in full all gifts to beneficiaries, submit to an abatement of profit costs earned by him pari passu with beneficiaries: see In re White; Pennell v. Franklin (1898) 1 Ch 297; (1898) 2 Ch 217 and Re Brown; Wace v. Smith (1918) 62 Sol Jo 487; (1918) WN 118 . In Re Salmen; Salmen v. Bernstein (1912) 107 LT 108 , where the estate was expected to prove involvent, it was held that a trustee could not prove in competition with creditors for salary earned by him in managing a business and payable to him by virtue of a clause in a will. (at p527)

9. In so far, if at all, as the cases cited are to be regarded as authority for a general proposition of law that a provision in a will authorizing a professional trustee to charge for services rendered by him in his professional capacity gives of its own force a legacy or gift or bounty to the professional trustee, they are, in my opinion, obviously unsound in principle. Sir Arthur Underhill, on Law of Trusts and Trustees, 9th ed. (1939), p. 348, after referring to four of them, says: "But whether these cases can be supported on principle is respectfully questioned." And in Hanson on Death Duties, 9th ed. (1946), pp. 488, 489, it is justly remarked that a provision of the kind in question "might be thought not to amount to a legacy but merely to prevent the operation of the rule of equity that an executor or trustee shall not make his office a source of profit, and thus to enable him to charge for services which, in the absence of any such direction, he would be bound to render gratuitously". (at p527)

10. The true position is very clearly put by Rowlatt J. in Jones v. Wright (1927) 44 TLR 128 . In an earlier case of Baxendale v. Murphy (1924) 2 KB 494 Rowlatt J. had had to consider a case in which a deed of trust provided (1) that each trustee should be entitled to remuneration for acting as trustee at the rate of 100 pounds per annum payable out of the income of the trust fund, and (2) that any professional trustee should be entitled to make the usual professional charges. It is important to note that no question arose as to any charges made under the second provision. The learned Judge held that the remuneration of 100 pounds per annum was an "annual payment" brought into charge to tax within rule 19 of the All Schedules Rules in the Income Tax Act 1918, and was not a payment in respect of employment so as to be the subject of direct assessment under Case II. of Schedule D. As to the nature of the payment he referred in his judgment to In re Thorley (1891) 2 Ch 613, at p 624 . In Jones v. Wright (1927) 44 TLR 128 the same question arose, but this time with regard to professional fees charged by a solicitor-trustee who was empowered by the trust instrument to charge for work done. The Attorney-General in argument suggested that Baxendale v. Murphy (1924) 2 KB 494 had been wrongly decided, and Rowlatt J., in giving judgment (1927) 44 TLR, at p 130 said:- "It may be that that is so". He did not think, however, that Baxendale v. Murphy (1924) 2 KB 494 covered the case before him. He said: "All that the latter (the trustee) gets under the clause which gives him power to charge is the removal of a disability which would otherwise prevent him from entering into an ordinary contract of service with the trustees in consideration of remuneration". He did not think that the substance of the position was affected by the fact that the solicitor-trustee could not sue his co-trustees and himself at common law. He said: "The respondent need not act as solicitor to any of these trusts. If he wishes to do so, he finds himself free to enter into a bargain". The learned Judge then referred at some length to In re Thorley (1891) 2 Ch 613 ; In re White (1898) 2 Ch 217 ; and Re Brown (1918) 62 Sol Jo 487; (1918) WN 118 ; and concluded his judgment by saying:- "I do not think that those cases cover the present matter, because I do not think that they mean that a bequest of profit costs is a bequest of a bounty that is not earned. Profit costs are earned in such a case as the present, and it is right to charge them with income tax under Schedule D, Case II. They remain remuneration, and must be treated as profits and earnings arising from employment" (1927) 44 TLR, at p 130 . Cf. generally Watson and Everitt v. Blunden (1933) 18 Tax Cas 402 . The true nature of the position in such cases is, I think, emphasized when one remembers that (as is pointed out in Godefroi on Trusts, 5th ed. (1926), p. 215), a solicitor in such cases derives from the trust instrument no right to be employed as solicitor to the trust. If his co-trustees or the beneficiaries do not wish him to act, and he seeks the assistance of the Court, the whole matter is in the discretion of the Court, which is extremely unlikely to interfere in his favour. (at p528)

11. The vague and cloudy notion that profit costs payable to a professional trustee by virtue of a provision in a trust instrument are matter of "bounty" rather than an authorized outgoing in administration is possibly traceable (although the case does not seem to be referred to in any of the cases I have mentioned) to language said to have been used by Lord Hardwicke in Ellison v. Airey [1748] EngR 382; (1748) 1 Ves Sen 111, at p 115 [1748] EngR 382; (27 ER 924, at p 927) . In that case there was a direction in the will that the trustees should be "paid for their trouble as well as expence". The validity of such a provision was challenged on the equitable ground that it "might be of general prejudice, because trustees frequently draw wills and settlements themselves". The report proceeds:- "But Lord Chancellor said this was a legacy to the trustees, to whom the testator may give this satisfaction, if he pleases. . . . Let the master therefore inquire what they might reasonably deserve for their trouble" [1748] EngR 382; (1748) 1 Ves Sen 111, at p 115 [1748] EngR 382; (27 ER 924, at p 927) . Great consequences cannot properly be made to hang on such a passage in a report, and (having regard to the point raised) I should have regarded Lord Hardwicke as meaning no more than that there was no substance in the point raised because the testator could authorize what he liked to be done with what was his own. (at p529)

12. If I thought that such cases as In re Pooley (1888) 40 Ch D 1 and In re Thorley (1891) 2 Ch 613 really depended on a supposed legal principle that profit costs payable to a solicitor-trustee by virtue of a provision in a trust instrument are for all purposes matter of "bounty" and not an authorized outgoing in the administration of the trust, I would think that such a principle was unreal and unsound. The view of Rowlatt J. and of Sir Arthur Underhill seems plainly right. But it would, in my opinion, be wrong to regard the cases on which the Commissioner relies as laying down any such false general principle, and wrong to regard any of them as having any bearing whatever on the present case. (at p529)

13. The cases fall into three classes. In the first class are In re Barber (1886) 31 Ch D 665 and In re Pooley (1888) 40 Ch D 1 . The old rule of law was that an interested witness was incompetent, and it would probably have been right to regard the solicitor in each of these cases as interested and therefore under the old law incompetent as a witness to the will. The disqualification was removed generally by 6 & 7 Vict. c. 85, but in the case of wills it had been dealt with first by 25 Geo. II., c. 6 (which applied only to wills of realty) and then more broadly by ss. 14 and 15 of the Wills Act 1837 (which applied to all wills). The policy adopted was not to validate the will as a whole but to destroy the "interest" by invalidating the benefit given to the witness. The wills in In re Barber (1886) 31 Ch D 665 and In re Pooley (1888) 40 Ch D 1 would have come clearly enough within s. 14 of the Wills Act, if it had been necessary at those times to invoke that section, and they were therefore valid, but it was by no means so clear that the cases came within the actual language of the complementary section, s. 15. What the courts really did was to regard the policy of ss. 14 and 15 and to give effect to that policy by a possibly somewhat strained interpretation of the latter section. This is made very clear by the short judgment of Lindley L.J. in In re Pooley (1888) 40 Ch D, at pp 4, 5 . His Lordship said:- "I think it is impossible to escape from the words of the section, and the case appears to me to fall within its policy. I think that under the old law Mr. Pooley would have taken by force of this clause such an interest as would have made him incompetent as a witness to the execution of the will. The policy of the Act was to leave the will good and to make void the gift which would have made the witness incompetent. Apart from this clause, Mr. Pooley could not get anything out of the estate for his services, and I cannot say that a clause which enables him to get something out of the estate is not a gift to him within the meaning of the 15th section." Bowen L.J., in the course of argument (1888) 40 Ch D, at p 3 , had asked:- "Is not a disposition of this kind within the policy of s. 15?" This is the whole substance of In re Barber (1886) 31 Ch D 665 and In re Pooley (1888) 40 Ch D 1 . (at p530)

14. In the second class of case is In re Thorley (1891) 2 Ch 613 . Here specific annual sums were directed to be paid out of the profits of a business. It has, in my opinion, no application to a general authority to receive payment for services such as we have in the present case. So Dr. Harrison, in his Practical Epitome of the Death Duties, at p. 209, says:- "In practice legacy duty is not claimed on remuneration authorized in general terms by the will to be paid to a professional executor or trustee for his services, for which he could not otherwise charge, but the duty is claimed in respect of any specified benefit given him by the will in return for his services, e.g., a pecuniary legacy, annuity, or share of income while acting". Cf. Green on Death Duties, 2nd ed. (1947), p. 267. This view of the effect of In re Thorley (1891) 2 Ch 613 seems to me to be clearly correct, and, so regarded, it has no relevance to the present question. (at p530)

15. The third class of case is exemplified by In re White (1898) 1 Ch 297; (1898) 2 Ch 217 . I do not think that there is any justification for regarding these cases as deciding more than that a person who must rely on the will for his right to the payment claimed by him must rank, in the event of an insufficiency of assets, with others who claim under the will and not with outside creditors of the estate. This seems to be a perfectly sound view. It may or may not be legitimate to regard the trustee, for the purposes of the question at issue in such cases as In re White (1898) 1 Ch 297; (1898) 2 Ch 217 as a "recipient" of "bounty". In my opinion it is not. But, if it is, it is fallacious to say that it follows that he must be so regarded for all purposes. (at p531)

16. In the present case the question turns entirely on the effect of the Seventh Schedule to the Act. The fourth column provides for all cases not covered by any of the first three columns. But, in order to bring any part of the estate within the fourth column, it must be found in this case that that part "passes" to some person or persons other than the widow and lineal descendants of the testator. Passing means passing on death. What passes on death under cl. 13? The plain answer is - nothing. It is not merely that it is impossible (as, of course, it is) by any means to identify or quantify any part of the estate as passing by virtue of cl. 13. The word "pass" connotes the creation of a beneficial interest in the estate. It is impossible to say that anybody acquires on the death of the testator even a contingent beneficial interest in the estate or any part of it under cl. 13. There is no case which decides that anything passes on the death of the testator under such a clause. If there were such a case, it ought not to be followed except by a court on which it is absolutely binding. (at p531)

17. The cross-appeal should be allowed. (at p531)

ORDER

Appeal of Commissioner of Stamp Duties dismissed with costs. Cross-appeal of respondent Pearse and others dismissed with costs. Costs to be set off.