New South Wales Institution for the Deaf, Dumb and the Blind v Shelley

[1917] HCA 46

Irutifiitumfor

the Deaf

Blind

Oumpq

(1919126

CLRW

23 C.L.R.] OF AUSTRALIA.

351

[HIGH COURT OF AUSTRALIA.]

THE NEW SOUTH WALES INSTITUTION

FOR THE DEAF, DUMB

AND THE V Appellants ;

BLIND AND ANOTHER.

D e f e n d a n t s ,

.1

AND

SHELLEY AND OTHERS .

R e s p o n d e n t s .

D e fe n d a n t s a n d

P l a in t if f s ,

ON APPEAL FRO.M THE SUPREME COURT OF

NEW SOUTH WALES.

Estate Duty—Apportionment of payment— "Different disposition"— Direction to H. C. o f A.

pay testamentary expenses out of residue— Direction to pay expenses of preceding

1917.

trusts out of residue—Estate Duty Assessment Act 1914 (No. 22 of 1914), secs.

v—

34, 35.

S y d n e y ,

.

Aug. 29, 30,

Tlie duty payable under the Estate Duty Assessment Act 1914 is not a testa- 3 j . Sept. 7.

inontary expense, and therefore a direction in a will to pay testamentary

B arton ,

expenses out of the residuary estate is not a different disposition ” within Isaacs and

the moaning of sec. 35 of that Act.

Rich J J .

A testator by his will, after creating certain trusts, directed his trustees out of the proceeds to arise from the sale, conversion and getting in of his i-esiduary estate “ in the firat place except where herein otherwise directed to pay or retain all the expenses incident to the execution of the preceding trusts and my debts funeral and testamentary expenses.”

Held, that there was no “ different disposition ” within the meaning of sec. 35 of the Estate Duty Assessment Act 1914, and therefore that the duty assessed imder that Act should be apportioned in the manner provided by that section.

Decision of the Supreme Court of New South Whales (Harvey J.) : Perpetual

Trustee Co. v. Shelley, 17 S.R. (N.S.M’.), 57, reversed.

352 HIGH COURT

[1917.

H. C. OF A.

A p p e a l from the Supreme Court of New South Wales.

An originating summons was taken out by the Perpetual Trustee

N e w S o u t h Co. Ltd., executors of the will of Norman Shelley, deceased, for the

I n s t it u t io n determination of the question (inter alia) whether upon the true

FOR THE

construction of the will the direction therein contained that the

D e a f , D u m b

,

AND THE trustee should, out of the proceeds to arise from the sale, conversion

B l in d

V .and getting in of the testator’s residuary estate, except where in

S h e l l e y .the will otherwise directed, pay or retain all the expenses incident

to the execution of the preceding trusts and the testator’s debts, funeral and testamentary expenses, amounted to a different dis­ position with respect to the payment of Commonwealth estate duty within the meaning of sec. 35 of the Estate Duty Assessment Act

1914. The defendants to the summons were Mary Shelley and a number of other beneficiaries under the will, including the New South Wales Institution for the Deaf, Dumb and the Blind and the Royal Alexandra Hospital for Children. The summons was heard by Harvey J., who made an order declaring that the direction in ques­ tion did amount to a different disposition within the meaning of sec. 35 of the Act: Perpetual Trustee Co. v. Shelley (1).

From that decision the New South Wales Institution for the Deaf, Dumb and the Blind and the Royal Alexandra Hospital for Children appealed to the High Court.

The material provisions of the will are stated in the judgment hereunder.

E. Milner Stephen (with him Nicholas), for the appellants. The direction to pay the expenses of the preceding trusts is not a “ dif­ ferent disposition ” within sec. 35 of the Estate Duty Assessment Act 1914. That direction applies only to the preceding trusts. The word “ expenses ” is not appropriate to describe the payment of Federal estate duty. Nor is the direction to pay “ testamentary expenses ” a “ different disposition.” A testamentary expense is some expense which must be incurred as a condition precedent to the executor obtaining the grant of probate and so clothing himself with the right to administer the estate. The payment of this estate duty has no relevance to obtaining probate. No payments need

(l) 17 S.R. (N.S.W.), 57.

23 C.L.ll.] OF AUSTRALIA.

353

be made by the executor until he is properly constituted executor. H. C. o f A.

The Federal estate duty is in the nature of a succession duty or a

legacy duty rather than of a probate duty, and it was so held in the N e w S o u t h

Supreme Court of South Australia in In re Barr Smith (unreported), institot îon That is shown by the fact that the burden of the payment of the i^ b

AND THE B l in d

duty is thrown upon the beneficiaries (secs. 35, 36, 37).

Pajunents

which an executor must make in the course of the performance of

V .

S h e l l e y .

his duties before he can administer the estate are not testamentary expenses unless they are relevant to the grant of probate. [Counsel referred to Allen v. Attorney-General (1) ; Sharp v. Lush (2) ; Porte v. ]yilliams (3); O'Grady v. Wilmot (4); In re Clemow ; Yeo v. Clemow (5) ; In re Sharman ; Wriyht v. Sharman (6) ; National Trustees, Executors and Ageiwy Co. v. O'llea (7) ; Lilly v. West Australian Trustee, Executor and Agency Co. (8).]

[PviCH J. referred to In re Hudson ; Spencer v. Turner (9).]

Knox K.C. (with him Maughan), for the respondents. The ques­ tion is ; What did the testator mean by this direction in his will ? In Carmichael v. Ryan (10) it was held that a direction to pay testamentary expenses out of residue amounted to a “ different disposition ” within the meaning of sec. 56 (3) of the Stamp Duties Act 1898 (N.S.W.). That decision has been acted upon in New South Wales ever since, and should be followed there. The provision in sec. 35 of the Estate Duty Assessment Act 1914 is substantially the same as that in sec. 56 (3) of tire Stamp Duties Act. It is therefore reasonable to assume that the testator meant to include payment of the Federal estate duty in the direction to j)ay testamentary expenses out of residue. Sec. 34 of the Estate Duty Assessment Act makes it an offence for an executor or administrator to make any disposition of the estate until he has paid the Federal estate duty. He must pay that duty before paying the duty under the Stamp Duties Act

1898. Payments which must be made by an executor or adminis­ trator before he can fully clothe himself with power to perform his duties may fairly be called “ testamentary expenses.” The term

(1) 1.5 S.R. (N.S.W.), 41.(0) (1901) 2 Ch., 280.

(2) 10 Ch. 1)., 408.(7) 29 V.L.R., 814; 25 A.L.T., 230.

(:i) (Kill) 1 Ch., 188.(8) 13 C.L.R., 416, at p. 424.

(4) (1!)10) 2 A.O., 231, at p. 258.(9) (1911) 1 Ch., 206, a tp . 210.

(5) (liKM)) 2Ch., 182.

(10) 20N.S.W.L,R. (Eq.), 137.

VOL. XXIII.

24

354 HIGH COURT

[1917.

H. C. OF A. cannot be limited to the expenses of obtaining probate because it admittedly includes expenses, such as those of obtaining the con-

N e w So u t h struction of the will, which may be incurred long after probate is

W a l e s ,

■■

I n s t it u t io n g r a n t e d .

The English decisions as to the effect of a direction to

f o e t h e

pay testamentary expenses do not apply because under the Finmice

D e a f ,

D u m b

AND THE

Act 1894 what is required is an express direction to the contrary

B l in d

and not a “ different disposition.” The direction to pay “ the

V .

S h e l l e y .

expenses incident to the execution of the preceding trusts ” is also a “ different disposition.” That direction refers to the expenses without which the trusts could not be executed at all. [Counsel

also referred to In re Douglas (1).J

,

E. Milner Stefhen, in reply, as to costs referred to Knight v. Knight (2) and Rosenthal v. Rosenthal (3). He also referred to In re King ; Travers v. Kelly (4) ; Berry v. Gaukroger (5) ; Mathie v. McDonald (6).

*

Ctir. adv. vult.

Sept. 7.

The judgment of the Court, which was read by Isaacs J., was as follows :—

The question is whether the Commonwealth estate duty under the Act No. 22 of 1914 is by the testator’s will directed to be paid out of the residuary estate. Harvey J. decided that it is so directed, and the appellants contend that it is not and that the duty should be appor­ tioned as provided by sec. 35 of the Act. The relevant clause in the will is in these terms : “ And as to the proceeds to arise from the sale conversion and getting in of my residuary estate I direct my trustee thereout in the first place except where herein otherwise directed to pay or retain all the expenses incident to the execution of the preceding trusts and my debts funeral and testamentary expenses.” The respondent relies on two phrases in that direction, namely, (1) “ the expenses incident to the execution of the preceding tru s ts” and (2) “ testamentary expenses,” as amounting to a “ different disposition ” within the meaning of sec. 35. The learned

(1) 9 S.R. (N.S.W.), 269, a tp . 285.(4) (1904) 1 Ch., 363, a tp . 368.

(2) 14 C.L.R., 86.(5) (1903) 2 Ch., 116.

(3) 11 C.L.R., 87.

(6) 16 S.R. (N.S.W.), 446.

23 C.L.R.] OF AUSTRALIA.

355

Judge from whom this appeal comes was of opinion that the duty H. C. o f a . answered both descriptions.

It is, we think, the better construction of the clause in question n e w S o u t h that each provision is exclusive of the other. The testator in adding ixsTit^mN the latter phrase was providing for something he had left undealt with

by the first.AND THE

B l in d

As to “expenses incident to the execution of the preceding trusts ” they seem to refer to the expenses attendant on actually carrying out the prior directions of the v/ill, after the trustee was clothed with the necessary authority. The “ preceding trusts ” are in contradistinction to the remaining trusts, and therefore the phrase cannot refer to a general expense which covers both preceding and subsequent provisions of the will. The clause includes the words “ except where herein otherwise directed.” The exception helps to strengthen the view which we take of the affirmative provision. It is otherwise directed as to the rates and taxes, insurance premiums, external repairs and other outgoings in connection with the cottage and land known as “ Glenara ” and as to the Henley property.

V .

S h e l l e y .

The second branch was much more strongly relied on than the first, the view presented being that sec. 34 of the Act enacts that the duty is to be a first charge upon the estate in priority over all other encumbrances whatever, and that no disposition of the estate or any part of it is permitted until the duty is paid. From this it was said that the “ administrator,” as he is termed in the Act, was bound to pay as a condition of getting the probate or letters of administration not merely the State probate dut}’, but also the Commonwealth estate duty, and therefore that the latter equally with the first was “ a testamentary expense.” But an examination of the Act shows that this view cannot be sustained.

Sec. 34 does not say simply that the duty is to be a first charge. What it says is that “ the duty assessed under this Act ” shall be a first charge. The latter part of the section goes on, however, to say that there shall not be any disposition of the estate or any part of it until the “ duty ” thereon has been paid or secured. But as to the charge, there must first be an “ assessment.”

Reference to the definition of “ administrator ” in sec. 3, to the provisions in sec. 10 as to his furnishing returns, to secs. 13 and 14

366 HIGH COUHT

[1917.

H. C. OF A. referring to the State assessments which are assumed to have been

1917

already made and probably paid, and to sec. 16 as to the result of

N e w S o u t .1 default in making returns will show that the assessment does not—

^V a l e s

.

I n s t it u t io n

events necessarily—take place before the issue of probate or

D e a f D i i j ib administration. This is confirmed by the provisions of

AND T H E

B l in dsecs. 24 to 28, because it is impossible to think that the right to pay

v.the State probate duty and get the probate or letters of adminis­

S h e l l e y .

tration must necessarily wait all that time, or whatever shorter time the Commissioner may under sec. 25 choose to make it by pro­ ceeding in adversum ow. the assessment as it stands.

Sec. 29 says that “ duty assessed ” shall be due and payable within thirty days after service by post of a notice of assessment, but that time may be extended by the Commissioner up to two years, and by sec. 32 it is made a debt only as “ duty assessed ” and as from the time it is due and payable. Then, when sec. 34 says the “ duty assessed ” is to be a first charge, it seems an irresistible conclusion from the whole Act that p>ayment of the duty cannot be regarded as a condition precedent to obtaining probate, or stand on the same footing as the State probate dutyn The provision in sec. 34 for­ bidding disposition until payment or security is by way of security only for a favoured debt, and from what has been said does not impart to the duty the character of a testamentary expense. Secs. 38 and 43 are wholly inconsistent with the idea that the payment of the estate duty is a condition precedent to the complete investiture of title of the administrator.

We do not find it necessary to define the limits of the term “ testa­ mentary expenses,” because we think the Commonwealth estate duty is clearly outside any reasonable interpretation of the expres­ sion. The Commonwealth Act does not concern itself with granting title in any way, or charging a price for it, or with prescribing the administrator’s duties under the w ill; it accepts the position as it finds it, for its own purposes it defines “ the estate ” to be taxed, and then it imposes a tax on “ the estate ” measured by a rate on its assessed value, and makes the tax payable when “ assessed,” and by the person recognized by the State law as the person entitled to represent the deceased or to administer his estate. By virtue of its overriding legislative power, it takes for the assessed duty

23 C.L.R.] OF AUSTRALIA.

357

certain priority of what it calls “ other encumbrances ” and forbids any “ disposition ” of the estate except its tax is paid or provided

for. It is unnecessary to decide what, if anything, is further imphed in the requirement of payment or security.

N e w S o u t h

iNsmwnoN

For these reasons we are of opinion that the decision goes beyond any heretofore recognized conception of testamentary expenses, and

i ^ mb

AND THE

B l in d

therefore the provision in the will that has been referred to is not a

V .

Sh e l l e y .

different disposition within the meaning of sec. 35.

The appeal will be allowed and the judgment varied by substitut­ ing for the word “ amounts ” in the relevant declaration the words “ does not amount.”

Appeal allowed. Order appealed from varied hy suhstitutiny for the word “ amounts ” in the relevant declaration the xvords “ does not amount.'^ Suit remitted to the Supreme Court in Equity for further proceeding in accordance with this judgment. Costs of this appeal to he costs of the suit.

Solicitoi's for the appellants, Stephen, J agues

Stephen.

Solicitors for the respondents, Allen, Allen & Hemsley ; Norton,

Smith c6 Co.

B. L.