Taylor v Deputy Federal Commissioner of Taxation [1969] HCA 25; (1969) 123 CLR 206 (6 June 1969)

HIGH COURT OF AUSTRALIA

TAYLOR v. DEPUTY FEDERAL COMMISSIONER OF TAXATION [1969] HCA 25; (1969) 123 CLR 206

Income Tax (Cth) - Executors and Administrators

High Court of Australia
Barwick C.J.(1), Taylor(1) and Menzies(1) JJ.

CATCHWORDS

Income Tax (Cth) - Assessments after death of taxpayer - Recovery of tax from executors - Whether assets in hands of executors - Land - Transmission application executed by devisee but not registered - Income Tax and Social Services Contribution Assessment Act 1936-1961 (Cth), s. 216 - Wills, Probate and Administration Act, 1898-1954 (N.S.W.), ss. 46, 46E.

Executors and Administrators - Distribution - What constitutes - Transmission application executed by devisee but not registered - Whether assets in hands of executors - Defence of plene administravit - Wills, Probate and Administration Act, 1898-1954 (N.S.W.), ss. 46, 46E.

HEARING

Sydney, 1969, April 22, 23; June 6. 6:6:1969
APPEAL from the Supreme Court of New South Wales.

DECISION

June 6.
THE COURT delivered the following written judgment: -
The appellants are, respectively, the executor and executrix of Ernest 1961, they were assessed, by amended assessments pursuant to s. 216 of the Income Tax and Social Services Contribution Assessment Act 1936-1961 (Cth), to income tax and social services contributions and additional tax in respect of the deceased's income during the years between 1st July 1944 and 30th June 1954 and for the balance of the period from 1st July 1954 to the time of his death. Notice of the assessments was given to the appellants (whom we shall call the executors) on or about 18th April 1961. No part of the amount of tax assessed having been paid, the respondent brought an action against the executors in their representative capacity to recover the amount - $106,988.50. In the result judgment was entered for the respondent in that sum, together with costs, "to be levied of the assets which were of the said Ernest Taylor at the time of his death in the hands of the defendants his executor and executrix as aforesaid to be administered of which the only assets they have in their hands are the property known as 'Kellys' and certain shares all of which are more particularly described in the schedule hereto" and, in so far as those assets should be insufficient to discharge the judgment, to be levied upon any future assets coming into their hands and, as to costs, "in so far as the assets of the said Ernest Taylor are insufficient thereto to be levied of the assets of the said defendants". We observe that the judgment contained what was, in effect, a declaration that the specified assets were subject to a first charge in favour of the respondent, apparently, pursuant to s. 216 (d). But we mention this merely to point out that the case was not concerned with the question whether a charge had attached to any property of the deceased; the action was one brougth against executors for the recovery of a debt and the test of their liability was not whether a charge had attached. It is, of course, possible that cases will arise where a charge under par. (d) will attach notwithstanding that liability cannot be imposed upon the trustees and where the trustees will be liable even though no charge has arisen. However in this case the form of the judgment seems to have been the subject of some measure of agreement between the parties after they had been informed of the substance of his Honour's decision, and, since one of the appellants was not only an executrix but also the devisee of "Kellys", we need say no more. (at p209)

2. The defence of the executors to the action had been twofold. First of all they had alleged that, with the exception of some shares of a comparatively small value, they had lawfully administered the estate of the deceased without notice of the respondent's claim and, secondly, in effect, that they had given a notice of the kind for which provision is made by s. 92 of the Wills, Probate and Administration Act, 1898-1954 (N.S.W.), and that, after the expiration of the period specified in the notice, they had distributed the assets of the deceased, other than the shares referred to, among the persons entitled thereto and that when this was done they had no notice of the respondent's claim. (at p210)

3. The bones of contention in the case were two grazing properties known, respectively, as "Beaumah" and "Kellys". The first of these the deceased, by his will, devised to his son the first-named appellant and "Kellys" he devised to his daughter, the secondnamed appellant. "Beaumah" was the subject of a transmission application made by the first-named appellant on 24th January 1958. This application was consented to by the executors on that date and the first-named appellant became the registered proprietor of "Beaumah" in March 1958. The second-named appellant, also on 24th January 1958, made an application to be registered as proprietor by transmission of the property known as "Kellys" but for reasons which will appear she has not yet become the registered proprietor. As appears the judgment in the case treats "Kellys" as an available asset in the hands of the executors but regards "Beaumah" as having been distributed before the claim of the respondent arose and without notice of any prospective or contingent claim by the respondent. In these circumstances the appellants appeal from so much of the judgment as treats "Kellys" as an available asset and the respondent cross-appeals against the exclusion of "Beaumah" as an available asset. (at p210)

4. Section 216 of the Income Tax and Social Services Contribution Assesment Act was at all material times in the following terms:

"The following provisions shall apply in any case where,
whether intentionally or not, a taxpayer escapes full taxation
in his lifetime by reason of not having duly made full complete
and accurate returns: -
(a) The Commissioner shall have the same powers and
remedies against the trustees of the estate of the
taxpayer in respect of the taxable income of the taxpayer
as he would have against the taxpayer if the taxpayer
were still living.
(b) The trustees shall make such returns as the Commissioner
requires for the purpose of an accurate assessment.
(c) The trustees shall be subject to additional tax to the
same extent as the taxpayer would be subject to additional
tax if he were living:
Provided that the Commissioner may in any particular
case, for reasons which he thinks sufficient, remit the
additional tax or any part thereof.
(d) The amount of any tax payable by the trustees shall be
a first charge on all taxpayer's estate in their hands."

Some aspects of this section have been the subject of consideration by this Court in Stapleton v. Federal Commissioner of Taxation [1955] HCA 58; (1955) 93 CLR 603 and Deputy Commissioner of Taxation v. Brown [1958] HCA 2; (1958) 100 CLR 32, and these cases show that the liability which may be cast upon legal personal representatives by an assessment pursuant to par. (a) of the section is not a personal or absolute liability but a liability as representatives of the deceased (Patterson v. Federal Commissioner of Taxation [1936] HCA 57; (1936) 56 CLR 507 ) and that the liability will not, in general, extend beyond the assets in the hands of the representatives at the time of the making of the assessment or coming to their hands thereafter (Stapleton v. Federal Commissioner of Taxation (1955) 93 CLR, at p 618 and Deputy Commissioner of Taxation v. Brown (1958) 100 CLR, at pp 42, 50, 51, 62, 63 ). Whether, in these circumstances, the defence of plene administravit is strictly appropriate is open to doubt for that defence does not adequately protect a legal personal representative where he has distributed assets among the beneficiaries even though he has done so without notice of any outstanding claim: Governor and Company of the Chelsea Waterworks v. Cowper (1795) 1 Esp 275 (170 ER 355) ; Norman v. Baldry [1834] EngR 801; (1834) 6 Sim 621 (58 ER 726) ; Smith v. Day [1837] EngR 284; (1837) 2 M & W 684 (150 ER 931) ; Knatchbull v. Fearnhead [1837] EngR 974; (1837) 3 My & Cr 122 (40 ER 871) ; Hill v. Gomme [1839] EngR 989; (1839) 1 Beav 540(48 ER 1050) ; Managers of Newcastle Banking Co. v. Hymers [1856] EngR 541; (1856) 22 Beav 367 (52 ER 1149) ; Taylor v. Taylor (1870) LR 10 Eq 477 ; and in Re Bewley's Estate (1871) 24 LT 177 . Possibly, it would have been better to have framed a special plea having regard to the effect which s. 216 has been held to have. However the substance of the third plea, if it was made out at the trial, provided a good answer to the respondent's claim and this plea raised two simple issues of fact. The first was whether both properties were distributed, as alleged, among the persons entitled to them and the second, whether, at the time of distribution, the executors had notice of the respondent's claim, such as it was at that time. (at p211)

5. With these observations in mind the cross appeal may be dealt with briefly and we shall deal with it on the assumption that the making of the assessments was not a condition precedent to a claim arising on the part of the respondent. The assessments were made on 24th March 1961, some three years after the first-named appellant became the registered proprietor of "Beaumah" and the learned trial judge accepted his evidence and found that when this occurred the appellants "had no notice of any claim, contingent or otherwise, against the estate" by the respondent. Upon consideration of the evidence upon which it was sought to burden the executors with notice we see no reason to disagree with his Honour's conclusion. Indeed, no substantial ground was advanced why we should do so. (at p212)

6. As far as "Kellys" is concerned the factual position is somewhat different, the legal title to the property having been at all relevant times in the name of the executors. Indeed they still hold the legal estate and the question is whether what has occurred amounted to what the third plea, in the language of the Wills, Probate and Administration Act, calls a "distribution". On this aspect of the case counsel drew our attention to ss. 46 and 46E of the lastmentioned Act. The first of these sections provides that the real as well as the personal estate of every deceased person shall be assets in the hands of his executor to whom probate has been granted, or administrator, for the payment of all duties and fees, and for the payment of his debts in the ordinary course of administration, whilst the second provides the real estate vested in an administrator shall not be divested from him and vested in another person who may be entitled thereto either beneficially or as a trustee, or as an executor or administrator, otherwise than by a registered conveyance, or by an acknowledgment operating under s. 83 of the Act, or by registration under the provisions of the Real Property Act, 1900 (N.S.W.). The argument seems to be, first of all, that s. 46 treats the real and personal estate of a deceased person, which vests in a legal personal representative by force of s. 44, as assets in their hands for the payments of all duties, fees and debts referred to in the section, and, thereupon, the effect of s. 46E is that they remain available assets in their hands until they are divested in accordance with the provisions of that section. We confess that we are unable to follow this argument. There is, of course, the possibility that the expression "his debts" in s. 46 may not be thought appropriate to describe a liability of the kind which may be imposed upon executors under s. 216 (a) but, apart from this, it is clear enough that an asset which, at the time when an assessment is made pursuant to that paragraph, is the subject of a binding contract of sale between the executor and a third party could not be regarded as an asset available in the former's hands for the payment of debts even though the executor still holds the legal title. It may be that the existence of the contract of sale will not necessarily prevent a charge attaching under s. 216 (d) but it does not follow that any liability can be imposed on the executor under the earlier paragraph. Further, land under the Real Property Act was never thought to be capable of passing from an executor to a beneficiary except in accordance with that Act and we do not understand the executors to contend otherwise. What they contend is that they had, before notice of the respondent's claim, done everything necessary to be done by them in order to transfer "Kellys" to the second-named appellant in satisfaction of the devise to her. The submission is based upon what has been called the well-known statement in relation to settlements by Turner L.J. in Milroy v. Lord [1862] EngR 951; (1862) 4 De G F & J 264, at p 274 [1862] EngR 951; (45 ER 1185, at pp 1189, 1190) . On this aspect of the case it is unnecessary to go beyond the observations of Griffith C.J. in Anning v. Anning (1907) 4 CLR 1049, at pp 1056, 1057 , and Dixon J., as he then was, in Brunker v. Perpetual Trustee Co. Ltd. [1937] HCA 29; (1937) 57 CLR 555, at p 602 . In the latter case Dixon J. referred to the statement in Milroy v. Lord [1862] EngR 951; (1862) 4 De G F & J 264, at p 274 [1862] EngR 951; (45 ER 1185, at pp 1189, 1190) to the effect that "The settler must have done everything which, according to the nature of the property comprised in the settlement, was necessary to be done in order to transfer the property and render the settlement binding upon him". Then he added (1937) 57 CLR, at pp 602, 603:

"But, in applying that test to the present question, care
must be taken to keep in mind what that question exactly is.
It is not whether the intending donor has divested himself of
his estate or interest in the land, or has done all that lies in
his legal power to do so. For obviously it was within his
legal power himself to cause the immediate registration of
the transfer. The question is whether by his acts he has
placed the intended donee in such a position that under the
statute the latter has a right to have the transfer registered,
a right which the donor, or his executors, cannot defeat or
impair. That delivery of the transfer to the donee or the
donee's agents is a condition which must be fulfilled before
such a right will arise appears to me to be clear. It is only
by the control or possession of the instrument that the
transferee could effect registration without any liability to
interference or restraint on the part of the transferor. Further,
I think that the donee must obtain property in the piece of
paper itself and property in the paper could pass only by
delivery (Cochrane v. Moore(1890) 25 Q.B.D. 57.).
If property in the transfer
remained in the transferor, his power of recalling it must also
remain. For he would be entitled to possession of the paper,
he could refuse to present it for registration and he could
destroy it. But, if by delivery to the donee or someone as
bailee for her, the transferor has given her property in the
instrument itself, then unless some further condition is expressly
or impliedly prescribed by the statute, it would appear that
the instrument, assuming it to be registrable, may be registered
by the transferee independently altogether of the donor and
in spite of any objection on his part." (at p214)

7. Thereafter his Honour discussed whether, in New South Wales, delivery to the donee of the relevant certificate of title is necessary in order that he may be able to assert a right to registration but where, as here, the certificate of title was delivered to the beneficiary this question does not arise. (at p214)

8. In the present case it appears that on 24th January 1958 the second-named appellant signed an application for registration as the proprietor of "Kellys" by transmission. The application bore an endorsement evidencing that she and her brother as executor and executrix consented to the application and, apparently, after this had been done the application and the relevant certificate of title were delivered to her. But difficulties arose because the application was signed "M. T. Hawke" whereas the name of the applicant was simply Marie Hawke. This has been her usual signature for twenty-one years for upon her marriage she had become one of three persons in the Orange district known as Marie Hawke. It was for this reason that she adopted Marie T. Hawke as her signature, the "T" standing for her maiden name. Faced with the necessity of making the necessary endorsement on the relevant certificate of title the Registrar-General issued a requisition that "The appln. shd. apparently be amplified to disclose the second xn. (christian) name of the applicant". Mrs. Hawke amended the application by crossing out the letter "T" in her signature and, upon returning the document to the Registrar-General, was told that she would have to re-execute it. This she did on 16th July 1959, but inadvertently the date to this re-execution was shown as 16th July 1958, and a further objection was taken. Finally she re-subscribed the application in the month of June 1960 but the document was never re-submitted to the Registrar-General because by then a letter, dated 13th March 1959, had been received by the executors informing them that the returns of the deceased taxpayer were then being reviewed in the office of the Deputy Commissioner. It seems to us clear enough that these facts bring the executors dealing with the property well within the principles as they are stated by Dixon J. The executors had given their consent in writing to the application as is required by s. 94 (1A) of the Real Property Act and they had delivered to the applicant for transmission the relevant certificate of title. Further they had caused the probate to be produced at the Registrar-General's office. Nothing, therefore, remained for them to do in order to enable the second appellant to become registered as proprietor. Equally, there was nothing the executors could do which would effectively revoke the consent which they had given, (cf. Noell v. Robinson [1726] EngR 21; (1683) 2 Vent 358 (86 ER 484) ), nor could they recall the document or in any other way prevent or obstruct registration. It is nothing to the point that Mrs. Hawke re-executed the transmission application on a number of occasions. The application was registrable in the first instance and she was in the position of a beneficiary of land under the Real Property Act whose trustees, intending to make a distribution, had done all that it was necessary for them to do to enable her to obtain registration. We add that in the application of the relevant principles we can see no distinction between the position of a settlor and that of an executor making a distribution in accordance with his testator's dispositions. This being so it is unnecessary to discuss how far, if at all, the principles laid down in Attenborough v. Solomon (1913) AC 76, at p 85 , and repeated in Wise v. Whitburn (1924) 1 Ch 460 , are applicable in the circumstances of the case. (at p215)

9. For these reasons we think the appeal should be allowed and the cross appeal dismissed and that there should be substituted for the judgment which was entered judgment for the plaintiff for $106,988.50 to be levied upon the shares described in the schedule to the judgment of the Supreme Court and in so far as the said shares are insufficient to discharge the judgment then levy to be made on any other assets of the deceased which shall hereafter come to the hands of the defendants. The respondent should pay the appellant's costs of the trial. (at p215)

ORDER

Appeal allowed with costs and cross appeal dismissed with costs. Judgment of the Supreme Court discharged and in lieu thereof order that judgment be entered for the plaintiff for $106,988.50 to be levied upon the shares described in the schedule to the judgment of the Supreme Court and in so far as the said shares are insufficient to discharge the judgment then levy to be made on any other assets of the deceased which shall hereafter come to the hands of the defendants. Respondent to pay the appellants' costs of the trial.