English Scottish & Australian Bank Ltd v Commonwealth [1959] HCA 56; (1959) 102 CLR 661 (22 October 1959)

HIGH COURT OF AUSTRALIA

THE ENGLISH SCOTTISH AND AUSTRALIAN BANK LTD. v. THE COMMONWEALTH [1959] HCA 56; (1959) 102 CLR 661

Estate Duty (Cth)

High Court of Australia
Dixon C.J.(1), Fullagar(1), Kitto(1), Taylor(1) and Windeyer(1) JJ.

CATCHWORDS

Estate Duty (Cth) - Duty - First charge upon the estate in priority over all other encumbrances - Meaning of "the estate" - Property subject to equitable charge - Not displaced by charge for duty - Estate Duty Assessment Act 1914-1950 (Cth), ss. 8 (3) (4), 10 (2), 34 (1).*

HEARING

Melbourne, 1959, October 8, 9, 12; October 22. 22:10:1959
CASE STATED.

DECISION

October 22.
THE COURT delivered the following written judgment:-
This is a special case by which the parties to an action in this Court of law for the opinion of the Full Court. (at p666)

2. The first two questions depend wholly upon the construction of certain provisions of the Estate Duty Assessment Act 1914-1950 (Cth). The facts which give rise to them are few and simple. A person who died in 1951 was at his death the registered holder of a parcel of shares on the Melbourne register of a company incorporated in the State of Victoria, and he was the registered proprietor under the provisions of the Real Property Act 1900 (N.S.W.) of an estate in fee simple in certain land in New South Wales. In his lifetime, the deceased had borrowed from the plaintiff a large sum of money on the security of a valid and enforceable equitable charge over the shares and the land. The money is still owing and the charge is still subsisting. By reason of a fall in the value of the shares which occurred after the death the estate has become insolvent, and the estate duty, which of course was assessed on the footing of valuations made as at the death, is still not paid in full. (at p667)

3. In these circumstances the defendants, who are the Commonwealth and the Commissioner of Taxation, claim to be entitled by virtue of sub-s. (1) of s. 34 of the Estate Duty Assessment Act to a first charge for the estate duty upon the shares and the land in priority to the plaintiff's equitable charge. The first two questions are directed to ascertaining whether the claim is well-founded. The first asks whether the charge for the duty has priority over the plaintiff's charge, and the second whether the plaintiff's charge takes priority over the charge for the duty. (at p667)

4. Sub-section (1) of s. 34 is in these terms: "The duty assessed under this Act shall be a first charge upon the estate in priority over all other encumbrances whatever, and there shall not be any disposition of the estate or any part of it until the duty thereon has been paid or the Commissioner Assistant Commissioner or a Deputy Commissioner certifies that he holds security for payment of the duty sufficient to permit any specified part of the estate to be disposed of". (at p667)

5. The answer to the questions depends on the construction to be given to the expression "the estate" in this sub-section. In sub-s. (3) and (4) of s. 8 provisions are found which in terms define the composition of the estate of a deceased person "for the purposes of this Act". Primarily, by virtue of sub-s. (3), it is to comprise property which was "his" - that is to say, was beneficially owned by him at his death. In addition, by sub-s. (4), property of certain descriptions which was not "his" at his death is nevertheless to be deemed part of his estate. It is upon the value, as assessed under the Act, of an estate so composed that estate duty is required, by s. 8(1), to be levied and paid. We are not here concerned with any property brought notionally into the estate by s. 8(4). As regards the shares and the land which stood in the name of the deceased at his death, and on which the plaintiff then held security for its debt, what was the property included in the estate by s. 8(3)? The answer must be, that which belonged to the deceased beneficially at his death. It is impossible to say that the shares and the land answered that description. Only so much of the beneficial interest in those items of property was his as remained after the carving out of the plaintiff's interest as equitable chargee. (at p668)

6. Two considerations suggest themselves at once as tending strongly against a construction of s. 34 which would give the charge for duty priority over the security held by the plaintiff. In the first place, such a construction necessitates placing upon the expression "the estate" a meaning radically different from that which it is given by the provisions whose special function it is to plot definitively the extent of the property which "for the purposes of the Act", and therefore, one would expect, for the purposes of s. 34, is to be treated as comprising the estate. And in the second place, the result of the construction is that duty required by the Act to be levied and paid upon an estate of which the plaintiff's interest in the shares and the land forms no part would be recoverable nevertheless out of that interest. In short, the Commonwealth would be enabled to resort to A's property for payment of B's estate duty, A having acquired his property from B, not under any transaction which is disregarded for estate duty purposes, but for full value and by an ordinary business transaction. An intention to produce a result so plainly unjust, so inconsonant with the general scheme of the Act, should not be attributed to the legislature if the language of the section is fairly open to another construction. (at p668)

7. The defendants, however, have pressed upon us a contention that "the estate" in s. 34(1) cannot be intended to have a meaning derived from the provisions of sub-ss. (3) and (4) of s. 8, because that meaning is precluded by indications to be found both in s. 34(1) itself and elsewhere in the Act. In regard to s. 34(1), they rely upon the fact that the statutory charge is given priority over "all other encumbrances whatever"; and they say that that expression must include encumbrances created in the lifetime of the deceased, because otherwise it would have very little practical application. They point out that the sub-section forbids any disposition of the estate or any part of it until the duty is paid or a Commissioner's certificate is obtained, so that there is no need to give priority over any encumbrances created by act of parties after the death. Hence, they say, if encumbrances over which priority is given are confined to encumbrances upon the estate as ascertained by the application of sub-ss. (3) and (4) of s. 8 - and they must be encumbrances coming into existence after the death - the only operation which the provision for priority can have is in relation to encumbrances created by the operation of statutes, Commonwealth or State. Commonwealth statutes, the defendants say, can hardly have been in mind, for it is not to be supposed that the Parliament intended to give the Commonwealth priority over itself; so that there are left, to be postponed to the charge for estate duty, only charges arising under State Acts, as for death duty, land tax, municipal rates, water rates, and the like. The answer is that, even so, every word of the sub-section, if construed in accordance with the plaintiff's argument, has a field of practical application; and the fact that that field is a narrow one provides no valid reason for departing from a construction which other considerations support. (at p669)

8. But the defendants' main reliance is upon a provision made by sub-s. (2) of s. 10. The section deals with the furnishing of returns for the purpose of the assessment and levy of estate duty. By sub-s. (1), it requires every administrator to prepare and furnish a statement in the prescribed form, setting forth a full and complete return of all the estate in the Commonwealth of the deceased person. Then it makes this provision in sub-s. (2): "The statement shall set forth the description and values of the items comprising the estate, before deducting any debts or other charges upon the estate, and shall also set forth in detail all the debts and other charges upon the estate, distinguishing between secured and unsecured debts and describing and valuing any security for any such debts". The defendants' argument treats the first limb of this sub-section as requiring the administrator to set out the description and values, not of the items of property which under sub-ss. (3) and (4) of s. 8 are comprised in or deemed to be part of the estate, but of the items which would be comprised in or would form part of the estate if all secured debts as well as all unsecured debts were left out of account, and were allowed for only under the second limb of the sub-section. To take a simple illustration, the contention is that if the estate includes an equity of redemption in land under common law title, the first limb of the sub-section requires a description and valuation of the fee simple, and the amount owing under the mortgage comes into account under the second limb only. It follows, the defendants say, that the expression "the items comprising the estate" must mean, in the case of encumbered property, the property considered as free of encumbrances; and they go on to submit that it is in a corresponding sense that the expression "the estate" is used in s. 34(1). (at p670)

9. The argument misreads s. 10(2). There is no reason for understanding the expression "the items comprising the estate" as referring to any other items of property than those which are included in the estate by the operation of sub-ss. (3) and (4) of s. 8. The words "before deducting any debts or other charges upon the estate" merely confine the first part of the administrator's statement to the ascertainment of the gross value of the estate which consists of those items. In this context it is clear that "charges" refers only to outgoings which, though not debts, must be met out of the estate by reason of some situation which existed at the death. Turning to the second limb of the sub-section, what is first required is that all the debts and charges, secured and unsecured, be set out. The evident object is to provide the material for ascertaining the sum to be subtracted from the value of the gross estate in order to ascertain the dutiable amount. In pursuance of that object, the provision goes on to require that secured debts must be distinguished from unsecured, and that any security must be described and valued. The result is to enable the value of any security to be deducted from the debt to which it relates, and so to ensure that the sum to be ultimately subtracted from the value of the gross estate shall include only, in respect of secured debts, any excess over the value of the respective securities. Thus, in the case where a deceased person was entitled at his death to an equity of redemption in land, there must first be set out in the statement the value, not of the fee simple, but of the equity of redemption; for it is that and not the fee simple, which is the item comprised in the estate. Then the mortgage debt must be included amongst the debts of the estate, and the value of the security must be given so that it may be deducted from the mortgage debt, and only the amount of any excess of the debt over the value of the security will enter into the amount ultimately to be subtracted from the value of the assets in the estate in order to find the dutiable value. In short, "the items comprising the estate" has not a meaning different from that which is to be ascertained by applying the provisions of s. 8(3) and (4) to the particular case, and accordingly there is nothing in s. 10(2) to affect the construction of s. 34(1). (at p670)

10. The defendants claim support for their contention from a passage in the judgment of the Full Court of the Supreme Court of Victoria in the case of In the Will of Harper, deceased; Harper v. Harper (1922) VLR 512 . The passage is this: "Section 34 makes the duty assessed a first charge upon 'the estate'. It seems impossible, without wrenching the language of the Act, to say that 'the estate' which is by this section charged with the duty assessed on it does not comprise the same items as the estate of which the descriptions and values of the items have to be set forth in the statement made by the administrator, if there be one. Hence, if sec. 10 is read as relating to the whole subject of the taxation, sec. 34 must be read as charging all these 'items' with the duty (1922) VLR, at p 523 ". There can be no question that this is correct; but only if s. 10 is misunderstood does the passage lend colour to the defendants' argument. On the construction of s. 10 which has been explained above, it is clear authority in favour of the plaintiff. (at p671)

11. For these reasons we are of opinion that the first two questions in the special case should be answered (1) No. (2) Yes. (at p671)

12. The third question asks, in effect, whether s. 34 is constitutionally valid if it has the meaning for which the defendants contend. As the section has not that meaning, the question does not arise. (at p671)

ORDER

Questions answered: (1) No. (2) Yes. (3) Does not arise. Costs of special case to be paid by defendants.