Estate of Hamra v Federal Commissioner of Taxation

[1973] HCA 41

HIGH COURT OF AUSTRALIA

. Stephen J.

ESTATE OF HAMRA v. FEDERAL COMMISSIONER OF TAXATION.

(1973) 129 CLR 608

16 October 1973

Estate Duty (Cth)

Estate Duty (Cth)—Dutiable estate—Notional estate—Insurance policy effected by deceased on own life—Assignment of policies to son of deceased—No consideration paid by son—Premiums paid by deceased after assignment—Whether proceeds of policy part of dutiable estate of deceased—Estate Duty Assessment Act 1914-1970 (Cth), s. 8 (4) (f).

Decision

October 16.
STEPHEN J. delivered the following written judgment:-
This is an appeal against an amended assessment to Estate Duty following the disallowance by the Commissioner of an objection to the inclusion in the dutiable estate of the late George Hamra of the proceeds of two life insurance policies on his life. (at p609)

2. In June 1968 the deceased effected two identical policies of insurance on his life, each of which provided for payment of the sum assured, on his death, to "The Assured or his Executors or Administrators or Assigns". He paid the first half yearly premium on each policy late in June 1968 and three months later, on 20th September 1968, effectively assigned one of such policies to each of his two sons in accordance with the provisions of s. 87 of the Life Insurance Act 1945-1965 (Cth) and these assignments were then duly registered pursuant to that section. (at p609)

3. No monetary or other consideration was given by either of the sons, the assignments were voluntary assignments. (at p609)

4. The second half-yearly premium on each policy was paid by the deceased in January 1969, notwithstanding his having assigned the policies. On 17th April 1969 he died and the proceeds of the policies were duly paid to the two assignees. (at p609)

5. The Commissioner has included these proceeds in the estate of the deceased, relying primarily upon s. 8 (4) (f) of the Estate Duty Assessment Act 1914-1970 (Cth); alternatively he relies upon s. 8 (4) (a) of that Act. (at p609)

6. Section 8 (4) (f) deems to be part of the estate of a deceased money payable to, or to any person in trust for, the widow, widower, children and other specified classes of relatives of the deceased under a policy of assurance on the life of the deceased where the whole of the premiums has been paid by or on behalf of the deceased; it also provides for a pro rata deeming where some only of the premiums have been so paid. (at p610)

7. The question is whether the section has any application in the present case. The critical facts are three in number; that the interests of the two sons of the deceased in the policies arose only by virtue of the assignments, before assignment they had no interest whatever in the policies or their proceeds; that the assignments were voluntary; that after the assignments the assignor, the deceased, paid the second, and what proved to be also the last, half-yearly premium due on each policy although he then had parted with all beneficial interest in the policies and their proceeds. (at p610)

8. If s. 8 (4) (f) were to be given literal effect, it would follow that the proceeds of each policy would be deemed to be part of the deceased's estate. The words of the paragraph are directly applicable, the proceeds were payable to a child of the deceased under a policy of assurance on his life where the whole of the premiums had been paid by the deceased. (at p610)

9. In Thurn v. Federal Commissioner of Taxation (1965) 112 CLR 432 , Menzies J. gave to the paragraph this literal interpretation and if his Honour's judgment comprised all the learning on the subject the correctness of the Commissioner's assessment would be clear enough. However his Honour's judgment was in dissent, the majority consisting of Kitto and Taylor JJ. It is clear that they did not regard the paragraph as having the operation which a literal reading of its terms would produce; hence their answer to the question in the stated case in a sense favourable to the appellants. (at p610)

10. However each of the members of the majority departed in a different respect from literal meaning. Kitto J. held that for the paragraph to apply the qualification for taking the benefit of the policy in question must be the fulfilling at the death of the deceased of a particular description, in that case the description of widow. It was not enough, he thought, that the person taking the benefit under the policy happened to fall within such a description; the relationship with the deceased was "central to the nature of the payability" upon which the application of s. 8 (4) (f) depends (1965) 112 CLR, at p 438 . The policy moneys became payable to the widow solely because she was the assignee of the policy and her status as widow was therefore irrelevant in determining the application of par. (f), which concerned itself with the relationships between a deceased and the payee of policy moneys "in so far only as they are germane to the legal or equitable right to receive payment of the policy money" (1965) 112 CLR, at p 439 . In the later case of Hill v. Federal Commissioner of Taxation (1969) 119 CLR 72, at p 82 his Honour described what he regarded as the point of Thurn's Case (1965) 112 CLR 432 as being that s. 8 (4) (f) did not apply to policy moneys which became payable to a widow "only in some character other than that of former wife of the deceased, e.g., in the character of purchaser of the policy." (at p611)

11. Taylor J. agreed with Kitto J. that the appellants should succeed but, as I understand his reasons for judgment, expressed no view upon the reasons for that result given by Kitto J.; instead he gave his own, very different, reasons; because there was no temporal coincidence of premium payments by the deceased (these being made only before assignment) with the period, following assignment, during which the policy was one under which money was contingently payable to the widow it followed that the paragraph did not apply. This lack of coincidence meant that no premiums were paid by the deceased under such a policy as the paragraph referred to; accordingly the paragraph was inapplicable. (at p611)

12. On one aspect of s. 8 (4) (f) all of their Honours were at one; the only argument reported as advanced on behalf of the nevertheless successful appellants, namely that the reference to money payable "under a policy" directed attention exclusively to the terms of the policy, to the exclusion of the effect of any assignment, was not accepted by the majority and was rejected by Menzies J. (at p611)

13. The facts of Thurn's Case (1965) 112 CLR 432 are in some important respects different from those here in question; the fact thought critical by Taylor J. is absent since here there did exist, after assignment, the necessary temporal coincidence; when the deceased paid the second half-yearly premium the policy was one under which money was payable to a member of one of the specified classes, in this case children of the deceased. However this fact was not, apparently, thought critical by Kitto J.; what he regarded as essential to the application of the paragraph was a fact absent in Thurn's Case (1965) 112 CLR 432 as in this case, namely that payability should depend upon the relationship between the deceased and the payee; in both cases the payee's only title to payment was as assignee and was quite independent of the relationship in fact existing between the parties, it did not accrue in virtue of status as a relative of the deceased. It is true that, whereas here the assignment was made without consideration, in Thurn's Case (1965) 112 CLR 432 the assignment was for full monetary consideration; however nothing in his Honour's reasoning suggests that anything turned upon the presence of consideration. (at p612)

14. It follows that on Taylor J.'s view of the relevant facts the present case is distinguishable on its facts from Thurn's Case (1965) 112 CLR 432 ; not so on the view adopted by Kitto J. (at p612)

15. In the outcome I am unable to extract from Thurn's Case (1965) 112 CLR 432 any authoritative guidance in arriving at a decision in the present case. (at p612)

16. Some four years after Thurn's Case (1965) 112 CLR 432 was decided the effect of s. 8 (4) (f) again came before this Court in Hill's Case (1969) 119 CLR 72 . The decision in favour of the Commissioner was unanimous but again very different views were expressed concerning the scope of the paragraph. (at p612)

17. In Hill's Case (1969) 119 CLR 72 the deceased had effected a policy on his life expressed to be in pursuance of s. 94 of the Life Insurance Act 1945-1961 for the benefit of his wife should she be living at the date of his death; he later purported by deed and for full monetary consideration to release and renounce in her favour all his interest in the policy and its proceeds; thereafter no premiums fell due before the date of his death, he predeceasing his wife. (at p612)

18. Menzies J. (1969) 119 CLR, at p 82 regarded the fact that the proceeds in fact became payable to the widow by virtue of the statutory trust created by s. 94 of the Life Insurance Act 1945-1961 as decisive in favour of the Commissioner even if the literal interpretation of the paragraph, to which he adhered, was incorrect. Kitto J. applied what he had earlier said in Thurn's Case (1965) 112 CLR 432 and concluded that where policy moneys become payable by virtue of such a statutory trust they necessarily fall within the section since the payee was entitled to them because of the relationship between the payee and the deceased. His Honour had earlier examined the effect of the deed of release and concluded that it was inoperative because the only event in which it would have had any effect, that of the wife predeceasing the life assured, did not occur; accordingly the deed formed no part of the widow's title to payment, which arose solely in her character as former wife of the deceased and not under the deed. (at p613)

19. Neither of these judgments appears to me to advance the matter beyond where it was left by Thurn's Case (1965) 112 CLR 432 . Windeyer J., in a short judgment, agreed that the Commissioner should succeed but did not add to what was said in other judgments in support of that conclusion. However the Chief Justice, in whose judgment McTiernan J. concurred, undertook a detailed consideration of the scope of s. 8 (4) (f) as a result of which he expressed what he regarded as the necessary limitation which "the nature and evident policy of the legislation" imposed upon any literal application of the sub-section (2). The Chief Justice thus joined with Taylor J. in Thurn's Case (1965) 112 CLR 432 and with Kitto J. in both cases, in denying to the paragraph its literal application. This then can now be regarded as established doctrine; the paragraph does not apply literally. (at p613)

20. On the facts before him the Chief Justice held (1969) 119 CLR, at pp 75-76 that the absence of the description "widow" in the policy was irrelevant; in a case such as this where the policy was expressed to be issued under s. 94 of the Life Insurance Act it must necessarily have been effected in favour of the beneficiary because of her relationship; however even apart from its reference to s. 94 the beneficiary's description as wife sufficed to show that that relationship was the reason for her selection as beneficiary. Hence s. 8 (4) (f) applied, it being applicable when, at the deceased's death, the beneficiary in fact stands in the necessary relationship to the deceased and that relationship is the basis upon which the policy moneys are "by its terms or by its evident circumstances made payable to the recipient" (1969) 119 CLR, at p 78 . His Honour stressed that for the paragraph to apply it must appear "from the terms or circumstances of the policy" that the beneficiary has been selected because the necessary relationship "exists on the date of the policy or, perhaps, will before maturity exist" (1969) 119 CLR, at p 79 . (at p613)

21. The Chief Justice reached his conclusion by reference to what he discerned as the policy of the paragraph; it sought to bring into the dutiable value of an estate not merely premiums paid by a deceased on policies on his life the proceeds of which would be payable to others on his death, these being in substance gifts, but also to deal with the character of premiums as investments, bringing into the estate's dutiable value the benefit of that investment (1969) 119 CLR, at p 76 . In Thurn's Case (1965) 112 CLR 432 , where the widow had in effect paid all premiums, in part in the form of consideration for the assignment, there was nothing for this discerned policy to operate upon (1969) 119 CLR, at p 77 . He doubted whether the paragraph had any application where in truth, as in Thurn's Case, no money of the deceased remained invested in the policy and in this respect referred with approval to the judgment of Taylor J.; if it did, he agreed with what Kitto J. had said as to it being inapplicable unless the moneys became payable because of the status of the beneficiary as one of the specified relatives of the deceased (1969) 119 CLR, at p 78 . (at p614)

22. The result of these two decisions, so far as they bear upon the present case, appears to me to be as follows: the apparent literal effect of the words of s. 8 (4) (f) is not to be applied, only the judgments of Menzies J. in both cases support such a view - in one he dissented, in the other at least three members of the Court expressed the contrary view; the paragraph is inapplicable where the payability of proceeds of the policy does not depend upon the relationship between life assured and beneficiary but upon the mere character of the latter as assignee by purchase, this follows from the ratio of the judgment of Kitto J. in Thurn's Case and finds support in what I think should be regarded as dicta in his judgment and that of the Chief Justice in Hill's Case (1969) 119 CLR 72 ; the paragraph applies when the policy describes the beneficiary as the wife of the life assured or as one of the other specified classes of his relatives and where the beneficiary in fact at date of death possesses that status, Barwick C.J. and McTiernan J. took this view in Hill's Case (1969) 119 CLR 72 and Kitto J.'s judgment in that case supports it. (at p614)

23. What is undetermined to date is whether when a policy which does not refer in any way to any relatives of the life assured is assigned without consideration to one of them without express reference to his status as relative, the life assured continuing to pay the premiums, the paragraph applies. Kitto J. does not expressly deal with this aspect but his references, in Hill's Case (1969) 119 CLR 72 , to the entitlement of the widow in Thurn's Case (1965) 112 CLR 432 as being "in the character of purchaser of the policy" (1969) 119 CLR, at p 82 - and to the widow in the case before him as occupying the character "of assignee by purchase" (1969) 119 CLR, at p 81 - are significant. The Chief Justice and McTiernan J. would, clearly enough, regard such a case as falling within the policy considerations to which the paragraph seeks to give effect. Passages significant in this respect appear in the Chief Justice's judgment where, in referring to the policy, he speaks of the existence of the relationship between the parties as being revealed, "by its terms or by its evident circumstances", as the reason why policy moneys are made payable to the recipient; likewise when his Honour speaks of that reason for payability appearing "from the terms or circumstances of the policy". (at p615)

24. The circumstances of the present policy, although not its terms, appear to me to disclose the existence of a relevant relationship as the reason for the payability of policy proceeds to the sons of the deceased. The circumstance of a voluntary assignment, coupled with continued payment of premiums by the assignor, in each case lends colour to the otherwise colourless description of the assignee; if to those circumstances be added the fact not of one isolated transaction, which might be explained on other idiosyncratic grounds, but of two simultaneous transactions, each involving a son and if, as in the present case, no other facts emerge, it seems to me to appear clearly enough that the policy proceeds became payable to each son because of his status as a son of the deceased and not in any other capacity. In the words of the Chief Justice in Hill's Case (1969) 119 CLR, at p 76 , "the relevant relationship ... of the beneficiary of the proceeds must have been and appear to have been the reason for his or her selection by the life assured for the role of beneficiary ..." His Honour was there speaking of a selection made by the taking out of a policy in the relative's favour but I see no reason why it should not equally occur at a later date by, for example, an assignment. (at p615)

25. Kitto J. pointed out in Thurn's Case (1965) 112 CLR, at p 438 , that those relatives referred to in the paragraph were persons "of a description which as a rule carries with it the notion of a moral or sentimental claim to bounty". Here the particular circumstances disclose that in fact the deceased did satisfy those moral or sentimental claims to bounty and, by means of a memorandum of assignment, made each policy serve the same purpose as a will, thereby providing benefits for certain of his relatives - per Kitto J. in Thurn's Case (1965) 112 CLR, at p 438 , referring to the judgment of Latham C.J. in Williams v. Federal Commissioner of Taxation (1950) 81 CLR 359, at p 375 . (at p615)

26. I accordingly conclude that the Commissioner correctly applied s. 8 (4) (f) in including in the estate of the deceased for duty purposes the moneys payable to his two sons under the two assigned policies. (at p615)

27. The appeal is dismissed with costs. (at p616)

Orders

Appeal dismissed with costs.