Perpetual Executors and Trustees Association of Australia Ltd v Federal Commissioner of Taxation

[1954] UKPCHCA 1

êtpetual

^cutorsAirust̂ ŝ Ajî

CLRl

434

HIGH COURT [J953-1954.

[IMUVY COUNCIL.]

PERPETUAL EXECUTORS AND TRU STEES\

A ppe l l a n t

;

ASSOCIATION OF AUSTRALIA L IM IT E D /

A p p e l l a n t ,

AND

FEDERAL COMMISSIONER OF TAXATION

R e s p o n d e n t .

R e s p o n d e n t .

ON APPEAL PROM THE HIGH COURT OF AUSTRALIA.

PeivyEstate Duty [Cth.)—Assessment—Pro2'>erty assessable—“ Personal property ”—

Council

“ Beneficial interest . . . which by . . . agreement . . . made by

1953-1954.“ deceased ” passed or accrued . . . to, or devolved . . . upon ” another person—Partner—Goodwill of partnership business—Option to surviving 1953,'piartners to acquire interest of deceased partner, no alloivance being made for

Dec. 1, 8 ;

goodwill—Estate Duty Assessment Act 1914-1942 [No. 22 of 1914—No. 18

1954,

of 1942), s. 8 (3) (h), (4) (e).*

Jan. 19.

At the date of his death T. was engaged in oarrying on business in partner­

Lord Oaksey,

Lord Morton of

ship! with other persons pjursuant to a jiartnership agreement which, inter

Henry ton,

Lord Peid,

alia, conferred on certain of the partners who surviued T. options to purchase

Lord Asquith of

Bisliopstone

his share in the capsital of the partnership at his death at a sum to be computed

andwithout taking into account the value of goodwill. The options were duly exercised and the jjurchase pirice ascertained in accordance with the agreement. Held, that the wLole of T.’s interest in the partnership piropertjq including goodwill, pjassed on his death to his legal pDersonal representative and was thereby assessable to duty under s. 8 (3) (b) of the Estate Duty Assessment Act 1914-1942 as being “ personal p^roperty ”, and, accordingly, was not assessable under s. 8 (4) (e) of the Act, which deals only with property not assessable as piart of the estate falling within s. 8 (3), but nevertheless deemed to form part of the estate.

Lord Cohen.

Dicta in Attorney-General v. Boden (1912) 1 K.B. 539, at pi. 556 to the effect that where a pDartnership! agreement pifovides tliat no allowance for goodwill

■ The text of these j.)rovi,sions is set out in the judgment of the Board, at pi. 438, post.

88 C.L.R.] OF AUSTRALIA.

435

is to be made to a partner or ills estate on liis death, his interest in the

P rivy

goodwill does not pass on his death, disapproved.

Council.

1953-1954.

Trustees Executors cfe Agency Co. Ltd. v. Federal Commissioner of Taxation /

{Milne’s Ca-?e) (1944) 69 C.L.R. 270 overruled. • , ~

P erpetual

Executors

Decision of the High Court {Perpetual E.vecutora & Trustees Association

AND

of Auslrnliu Ltd. v. Federal Commissioner of Taxation {Thomas’ Case) (1949)

' Trustees

77 C.L.R. 493) reversed.

Association

OF

Austr.alia

A p p e .4L from the High Court.

Ltd .

V.

This was an appeal, by special leave, from the decision of the Full Court of the High Court {Latham C.J., Bich, Dixon, McTiernan

F ederal

Commis­

sioner OF

and Webb JJ.) {Perpetual Executors & Trustees Association of

Taxation.

Australia Ltd. v. Federal Commissioner of Taxation {Thomas' Case) (1)), dismissing an appeal from Williams J. who held, following Trustees Executors (& Agency Co. Ltd. v. Federal Commissioner of Taxation {Milne's Case) (2), that where, under a partnership agreement, an option was given to surviving partners to purchase the share of a deceased partner at a sum calculated so as to exclude goodwill and the option was exercised, the deceased partner at the time of his death had a beneficial interest in goodwill which on or after his death by virtue of the partnership agreement passed or accrued to, or devolved on, the surviving partners within the meaning of s. 8 (4) (e) of the Estate Duty Assessment Act 1914-1942. The relevant facts and statutory provisions are sufficiently set

forth in the judgment hereunder.

Geoffrey Cross Q.C., and J . H. Stamp, for the appellant.

Pascoe Hayivard Q.C., and V. M. C. Pennington, for the respon­

dent.

Their Lordships took time to consider the advice which they would tender to Her Majesty.

L ord Co h e n delivered the judgment of their Lordships as follows :—

This appeal relates to an assessment made by the respondent under the Estate Duty Assessment Act 1914-1942, in respect of the estate of the late Frederick Charles Henry Thomas (hereinafter called Mr. Thomas) who died on 28th January 1944. The appellant is the executor of his will.

(1) (1949) 77 C.L.R. 49.3.

(2) (1944) 69 C.L.R. 270.

436 HIGH COURT

[1953-1954.

P r i v y

C o u n c i l .The ])i'iuci|)al asset of the testator was his interest in a firm

1053- 1954:.c a r r y i n g on business as furniture warehousemen under the name

and style of “ Majiles ” pursuant to a deed of partnership made

PUUI’HTUALon '2‘2nd December 1939, as modified by a supplementary agreement

E x LCU'I'ORS

ANOdated 4lh December 1940, tiie other partners being Robert Nathan,

T iU'STHU.SMrs. Louisa Jones, Mrs. Lorna Hannon, Lionel Newton, Lauri

A sso ciatio n

OF

Joseph Newton and Donald Lamond.

A u s tr a lia

Chuise 5 of the deed provided that the capital of the partnership

Lt d .

V.(thereinafter called the capital) should consist of the then existing

F e u e r a l assets of the partnership. Their Lordships pause here to observe

CoM .-UIS-

SIONER OFthat the parties agreed that despite this definition the expression

'I'a n a t i o n .

“ the capital ” , so far as the question now at issue is concerned,

meant the capital as at the date of the death of Mr. Thomas.

Clause 6 defined the interests of each partner in the capital and allotted to Mr. Thomas nineteen and one-half per cent thereof. Clause 8 provided that the net profits of the business should be divided between the partners in proportion to their respective shares from time to time in the capital.

Clause 9 provided that the partnership should not be dissolved by the death or retirement of any of the partners, and contained provisions defining as regards each partner what was to happen in the event of his or her death or retirement. So far as Mr. Thomas was concerned, the clause conferred options on the surviving or continuing partners, other than Donald Lamond, to purchase Mr.' Thomas’ share in the capital in specified proportions, the details of which are not material to the issues their Lordships have to decide.

Clause 12 defines how the purchase price is to be ascertained in the event of any of the options being exercised, and is in the following terms :—“ 12. LTpon the exercise of the respective options hereinbefore contained the purchase price payable on the exercise of such option shall be the total of the following amounts (namely) :— (a) The proportionate part of the balance of assets over liabilities as disclosed in the balance sheet of the partnership in respect of the accounting year of the partnership prior to the date on which such option shall first be exercisable corresponding to the part of the interest in the partnership being purchased provided always that if in compiling the relevant balance sheet the value of the book debts shall not have been treated as fifteen shillings for each pound of the actual debts owing at the end of the period in respect of which such balance sheet shall have been compiled the said balance of assets over liabilities shown by the relevant

88 C.L.K.] OF AUSTRALIA.

437

P r iv y

balance sheet shall be adjusted by taking the said book debts into Co u n cil .

the said balance sheet at a value of fifteen shillings for each pound ; 1953-1954.

and (6) The like proportion of any real estate which shall have

P erpetual E xecutors

been acquired by the partnership between the end of the said

period and the date on which the relevant option shall have been

AND

first exercisable (hereinafter called the current year) at the price

Trustees

Association

at which the same shall have been acquired plus any amounts

OE

expended thereon by the partnership during the current year

Australia

Ltd .

less any liability existing on such real estate to the vendor thereof

V.

F ederal Commis­

or under any mortgage thereover,

(c) The like proportion of the

profits of the partnership for the current year ascertained in the

sioner OE

manner provided in cl. 13 hereof. Provided always and it is hereby

Taxation.

agreed and declared that the balance sheet signed by the parties hereto at the time of the execution of these presents shall be deemed to be the balance sheet of the partnership for the accounting year of the partnership ended on the twenty-eighth day of February One thousand nine hundred and thirty-nine. Without affecting the generality of the foregoing provisions it is specifically agreed and declared that in computing the amount of purchase money payable on the exercise of any option no sum shall be added or taken into account for goodwill ” .

Clause 14 gave a person exercising an option the right to pay the purchase money by instalments, and provided for interest at the rate of £5 per cent per annum on any balance for the time being unpaid. I t also provided that on the exercise of any option the purchaser should be deemed to have acquired the interest in respect of which the option had been exercised as from the date that such option shall have been given or deemed to have been given—in the present case in the event which happened, as from the date of the death of Mr. Thomas.

Clause 19 fixed the end of each accounting year of the partner­ ship as 28th February.

The terms of the supplementary agreement are not material to any issue their Lordships have to decide.

Mr. Thomas having died on 28th January 1944, the partners who survived him duly exercised the options conferred on them. The purchase price was ascertained in accordance with the pro­ visions of cl. 12 of the partnership deed and was fixed at £156,217 11s. 3d. In accordance with the last sentence of that

clause no sum was added or taken into account for goodwill. The

purchase price was duly paid.

I t will be convenient at this stage to refer to the relevant pro­ visions of the Estate Duty Assessment Act 1914-1942. Section 8,

43 S HIGH COURT

[] 953-1954.

I ' r i v v

Co u n c i l .SO fax as is material, is in the following terms : “ (1) Subject to

liCi.'Miir)-!.this Act, esta-te duty shall be levied and paid upon the value, as assessial under this Act, of the estates of persons dying after the I ’ KKl ' IOTUALcommenc-ement of this Act. (3) For the jjurposes of this Act the

-lOXKI’UTORS

ANDestate tif a deceased person comprises— . . . (6) his personal

T kustuios

property, wherever situate (including personal property over which

A sso cia tio n

ouhe had a general ])ower of appointment, exercised by his will), if the

A u s t r a l ia

decea.sed was, at the time of his death, domiciled in Australia ;

I/I’D.

V.(4) ih'operty— . . . (e) being a beneficial interest in property

F e d URAL which the deceased person had at the time of his decease, which

C om m is ­

beneficial interest, by virtue of a settlement or agreement made

sio n 10 K

OE

T a x a t io n .by him, passed or accrued on or after his decease to, or devolved

on or after his decease upon, any other person . . . shall for the purposes of this Act be deemed to be part of the estate of the person so deceased ” .

“ Settlement ” is defined by s. 3 as follows :—“ ‘ Settlement ’ means a conveyance, transfer, appointment under power, declara­ tion of trust or other non-testamentary disposition of property made by any person either before or after the commencement of this Act containing trusts or dispositions to take effect after the death of the settlor or any other person dying after the commence­ ment of this Act ” .

Section 10 imposes on the administrator of a deceased person the duty of preparing and furnishing in the prescribed form a statement setting forth a full and complete return of all the estate in Australia of the deceased person.

Section 15 imposes on the respondent the duty of making an assessment for the purpose of ascertaining the duty payable.

Section 24 entitles an administrator who is dissatisfied wnth an assessment so made to lodge with the respondent notice of objection within thirty days after service of the notice of assessment. If the administrator is dissatisfied with the decision of the respondent on his objection, he has alternative remedies, the remedy relevant to the present case being a right to request the respondent to treat his objection as an appeal and to forward it to the High Court. Section 27 (2) provides that the appeal shall be heard by a single justice. By s. 27 (3) it is provided that the objector shall be limited, on the hearing of an appeal, to the grounds stated in his objection. The appellant duly made a return pursuant to s. 10 on 20th June 1944. In the statement of assets annexed thereto there appears the follownng entry, “ Interest in a partnership as per balance

88 C.L.R.] OF AUSTRALIA.

439

Privy

sheet and valuations as per Schedule 9 ‘ £156,217 11s. 3d.’

Council.

Schedule 9 is in the following terms :—

1953-1954.

“ Interest in a partnership

Value of deceased’s 19|% interest in thePsEPETrAL

E xecutors

partnership known as Maples £156,217 11s. 3d.

AND

Trustees

Association

(The amount set out is the amount at which the executor of the

OF

deceased is obliged to sell the deceased’s interest in the said partner­

Australia

Ltd .

ship pursuant to partnership deed dated 22nd December 1939,

V.

under which all but one of the surviving partners have the option

Federal Commis­

of purchasing the interest of the deceased).”

sioner OF

On 14th February 1947, the respondent served notice of assess­ ment on the appellant together with a federal estate duty alteration sheet which showed the alterations made in the assessable value shown in the return lodged. These included the following additions :—

Taxation.

“ Interest in partnership of Maples undervalued £36.

“ Proportion of goodwill in Maples, s. 8 (4) (e) £20,000.”

The last addition was, their Lordships think, made in this form as the result of the decision of the Full Court of the High Court in Trustees Executors <£ Agency Co. Ltd. v. Federal Commissioner of Taxation (1). The judgment in that case was given on 1st August 1944, in a matter relating to the estate of James Brown Milne, deceased, and their Lordships will refer to the case hereafter as “ Milne’s Case ” . Milne was a partner in the firm of John Sanderson & Co., and the partnership deed was similar in every material respect to the partnership deed in the present case. On Milne’s death his partners exercised their option to take over his share in the partnership capital at a price ascertained in accordance with the provisions of the deed, which included a provision that on the death, retirement or expulsion of a partner no allowance should be made to him or his representatives in respect of the value of the goodwill of the business. The court by a majority {Rich, Starhe and Willia^ns JJ., Latham C.J. and McTiernan J. dissenting), held that within the meaning of s. 8 (4) (e) of the Act the deceased partner at the time of his death had a beneficial interest in the goodwill which, on or after his death, by virtue of the partnership agreement passed or accrued to, or devolved on, the surviving partners. Their Lordships will have to return later to Milne’s Case (1), but they pause here to observe that it was not argued in that case that Milne’s interest in the goodwill fell

(1) (1944) 69 C.L.R. 270.

440 HIGH COURT

[1953-1954,

l̂ lUVYto bo assessed under s. 8 (3).

I t seems to have been common ground

CouNcnL.

i9r):}-ii)r)4.betw('cn tJie parties and to have been accepted b j both majority

and minority of the court that wliile Milne’s interest in the other

i’lORl’KTUAL

Kxiccutorsassets of the partnership was assessable under s. 8 (3) (b), his interest

AN I)in goodwill was assessable, if at all, only under s. 8 (4) (e). The

T r i ’s th k s

majority held that; it was so assessable, but the minority were of

A wscx' ia tio n

O l ' ’

opinion that, having regard to the terms of the partnership deed,

A ustra liait ceased on the death of a partner and therefore could not fall

Lt d .

V.within s. 8 (4) (e).

1<"f,1)10RAT,

On 14th March 1947, the appellant lodged notice of objection pursuant to s. 24 of the Act.

COiMMlS-

I t is clear from the terms of that

SU)NKR OK

TAXA'i’K)N.notice that it was primarily directed to supporting the view of

the minority in Milne's Case (1), but having in mind a submission that was made by Mr. Pascoe Hayward, for the respondent, their Lordships would call attention to pars. 23, 24 and 25 of the notice of objection which were in the following terms : “ That as at the date of his death the interest of the deceased was a right to receive the purchase price payable upon the exercise of the options contained in the articles of partnership in respect of the said firm, dated the twenty-second day of December 1939 as amended by indenture dated the fourth day of December 1940 made between the partners of the said firm, and on the exercise of the said options no amount was payable in respect of goodwill. That the interest of the deceased in the assets of the partnership ceased at the date of death of deceased conditionally upon the exercise of the said options and payment of the purchase price which options have been exercised and which purchase money has been paid. That the estate of deceased is not dutiable in respect of any proportion of goodwill of the said firm of Maples pursuant to s. 8 (4) (e), or any other provision, of the Estate Duty Assessment Act

On 29th January 1948,. the respondent disallowed the objection. On 4th March 1948, the appellant required the respondent to treat the objection as an appeal and to forward it to the High Court. The appeal came before Williams J. on 8th March, 1949, Mr. Tait K.C. appearing for the appellant and Mr. T. W. Smith K.C. appearing for the respondent. In the transcript of the proceedings there appears the following passage from Mr. Tail’s opening speech : “ That being cleared up, it left one matter in dispute between the parties, the matter now before the court. That is the question of goodwill, namely, that in valuing that asset of the deceased which consisted of his interest in the partnership, account should be

(1) (1944) 69 C.L.R. 270.

88 C.L.R.] OF AUSTRALIA.

441

Peivy

taken of the value of the goodwill. The parties have gone further.

Council.

They have agreed upon what that value would be if it should be 1953-1954.

included, and the figure is £20,000. This matter was the subject

P erpetual Executoes

of a decision in this court in Milne's Case (1) comparatively

recently ” .

AND

Trustees

Mr. Smith, for the respondent, said that the respondent would not be relying on any other provisions of the Act apart from

Association

OF

s. 8 (4), though he might wish at some later stage to rely on grounds

Austealia

Ltd.

not precisely in accordance with the views of the majority in

V.

Eedbral Commis­

Milne's Case (1). At the conclusion of the argument the transcript

records the following observations : “ Mr. T a it ; I mentioned,

sioner OF

I think, the parties had agreed, if the value of this goodwill was

Taxation.

to be included, the figures should be £20,000. Perhaps that could be taken as a mutual admission. Mr. Smith ; That has been agreed to, £20,000 as the value of the share of the goodwill if it be taxable. His Honour : Very well ” .

On the same day Williams J. delivered judgment dismissing the appeal. The material portion of his judgment was in the following terms : “ The respondent, without giving up any other contentions open to him upon the true construction of the Act, contends that it forms part of his [the testator’s] notional estate within the meaning of s. 8 (4) (e) of the Act. I t seems to me necessarily to follow from Milne's Case (1) that this contention must succeed. I must therefore order that the appeal be dismissed with costs ” (2). The appellant appealed to the Full Court, who dismissed the appeal saying ; “ I t is conceded that this appeal must fail unless the Court is prepared to reconsider and to overrule the decision in Trustees Executors <& Agency Co. Ltd. v. Federal Commissioner of Taxation {Milne's Case) (1). The decisions of a superior court have a double aspect. They determine the controversy between the parties, and in deciding the case they may include a statement of principle which it is the duty of that court and of all subordinate courts to apply in cases to which that principle is relevant. Continuity and coherence in the law demand that, particularly in this Court, which is the highest court of appeal in Australia, the principle of stare decisis should be applied, save in very exceptional cases.

The Court is not bound by its previous decisions so as absolutely to preclude reconsideration of a principle approved and applied in a prior case, but, as was stated in Cain v. Malo^ie (3), the excep­ tions to the rule are exceptions which should be allowed only with great caution and in clear cases. Barton J. in The Tramways Case (4),

(1) (1944) 69 C.L.R. 270.(3) (1942) 66 C.L.R. 10.

(2) (1949) 77 C.L.R. 493, at pp. 494­

(4) (1914) 18 C.L.R. 54, at p. 69.

442 HIGH COURT

[]953-1954.

Pki\ v

'

CoiiNcii. .whicli Ims (leen roferred to by Mr. Tarf, said : ‘ I have never

l95:M9r)4.t h o u g h t that it was not opiai to this Court to review its previous

decisions upon jj;ood cause. Tlu' ipiestion is not whether the Court

I'liKJ'KTUALcan do so, but whotln'r it will, havinf^ due regard to the need for

ICxi'X'HTOliS

AND

conlinuity and consistency in. judicial decision’. His Honour

T iuihtichsproceeded to say : ‘ Changes in the number of appointed Justices,’

A sso ciatio n

O I < ’

--(and I would add, changes in the personnel of the bench which

A i ' sthaliahap|,)ens to deal with the first case or a second case)—‘ can, I take

Lt d .

V.it, never of themselves furnish a reason for review ’. His Honour

Kudiokai. coi,itinued : ‘ Rut the Court can always listen to argument as to

CoSlMIS-

SIONIOK OFwhether it ought to review a particular decision, and the strongest

T a x a t i o n .reason for an overruling is that a decision is manifestly wrong,

and its maintenance is injurious to the public interest ’. In the present case, there are no circumstances which would justify, in accordance with those principles, an overruling of the decision in Milne s Case (1). The only circumstance which is really relied upon for the purpose of persuading the Court to reconsider the decision is that it was a majority decision. This is plainly an insufficient ground for asking the Court to overrule a previous considered decision of five justices. I t may be that con.sider- ations are present in constitutional cases, where Parliament is not in a position to change tfie law, which do not arise in other cases. In what I have said I make no reference to constitutional cases. The consequence is that, if the court adheres, as it should, to the decision in Milne s Case (1), the appeal must fail ” (2).

Their Lordships have thought it desirable to set out in full the judgment of the Full Court in order to make it clear that neither in Milne’s Case (1) nor in the present case was any argument addressed to the High Court in support of the proposition advanced before their Lordships that the deceased’s interest in goodwill was part of his estate as being personal property within s. 8 (3) (6) and could not therefore be property not actually forming part of the estate but only deemed to be part of the estate under s. 8 (4).

From this decision the appellant appeals to this Board pursuant to special leave granted by His late Majesty on 24th May 1950. The reasons given by the appellant in this case for inviting your Lordships to reverse the decision of the High Court were directed in the main to supporting the views of the minority in Milne’s Case (1), but reason 3 was in the following terms : “ Because under the partnership agreement in the events which happened the deceased had no interest in the specific assets of the partnership after his death but only the right to receive the purchase price payable by the survivors ” .

(1) (1944) 69 C.L.R. 270.

(2) (1949) 77 C.L.R., at p]). 495-496.

88 C.L.R.] OF AUSTRALIA.

443

Privy

The rea.sons advanced by the respondent in support of the judgment in the court below were intended primarily to support

Council.

195.3-1954.

the judgment of the majority in Milne's Case (1) but in par. 25

P erpetual E xecutors

of his case the respondent intimated his intention of advancing

in the alternative the following contention : “ (i) That the deceased

AND

had at his death an undivided share in all the assets of the partner­

Trustees

Association

ship, (ii) That the concluding words of the proviso to cl. 12 of the partnership deed did not have the effect of divesting the deceased

OF

Australi.a

Ltd .

on his death of his share in the goodwill as one of those partner­

V.

F ederal Commis­

ship assets, (iii) That, consequently, the deceased’̂s said undivided

share of the goodwill was as much part of his personal property

sioner OF

within the meaning of s. 8 (3) (6) of the Act as was his undivided

Taxation.

share in any other asset of the partnership, and, on the subsequent purchase of his share in the partnership, his undivided share in the goodwill passed to the purchasers in the same way as did his undivided share in all the other assets of the partnership, (iv) That in assessing, pursuant to s. 8 (1) of the Act, the value of such part of the estate of the deceased as consisted of the deceased’s share in the partnership, the respondent was not bound to accept as such value the price paid by the other partners when they subsequently purchased that share, (v) That such purchase was in effect, and to the extent of £20,000, made at an undervalue, such £20,000 being the agreed value of the deceased’s share in the

goodwill,

(vi) That, in consequence, the assessment is right ” .

When the case came before their Lordships, Mr. Cross attacked the reasoning of the majority in Milne’s Case (1), but he did not seek to defend the reasoning of the minority. He argued that Mr. Thomas’s interest in the goodwill was only part of his interest in the partnership assets and that the whole of such interest was part of the personal property forming part of Mr. Thomas’s estate and fell within s. 8 (3) (6). Mr. Pascoe Hayward, for the respondent, did not seek to support that part of the majority in Milne's Case (1) which was based on a severance between the deceased’s interest in goodwill and his interest in the other partnership assets. See, e.g., where Starke J. said : " The que.stion whether the Com­ missioner was right in so including the value of the goodwill in his assessment depends upon several provisions of the Estate Duty Assessment Act. By s. 8 (3) {b) the estate of a deceased person comprises, inter alia, his personal property if the deceased was at the time of his death domiciled in Australia. No doubt the partnership interest of the deceased was part of his estate, yet that interest did not include goodwill, for the partnership deed

(1) (1944) 69 C.L.E. 270.

444 HIGH COURT

[1953-1954.

P r iv y

('OUNt’lL.itself expressly provided that no allowance should be made to

the deceased or Ids representatives in respect of the value of the

19.5.3-11)54.

goodwill of the business ” (1).

P kkPR'I'UAT.Mr.

Pascoe lla,ywa,rd argued that the whole of the deceased’s

E xuCI'TORS

AX ninterest in the partnership assets, including goodwill, fell to be

'I’ri'steus

assessed under s, 8 (4) (e). Their Lordships’ reasons for rejecting

A s .s o c ia tio n

OKthis argument will appear sufficiently from the reasons Avhich

Avstkalia

their Lordships will now proceed to give for thinking that Milne’s

IjTI).

V.          Case (2) was wrongly decided. In Milne’s Case (2) three questions

Ficderalwere submitted for the opinion of the Full Court, the first and

C oM iU IS -

third of which were as follows :—“ (!) Whether the dutiable estate

S IO N E ll

OF

Taxation.

of the testator included any and if any what interest in the goodwill of the said partnership. (3) Whether the testator had at the time of his death any beneficial interest in the said goodwill which by virtue of the said indenture of partnership passed or accrued on or after his death or devolved on or after his death on any of the said surviving partners of the said firm of Sanderson & Co. ”.

I t is clear from the judgments that the Full Court treated the first question as asking whether the interest of the deceased in goodAvill was dutiable under s. 8 (3). All the judges answered question 1 in the negative except Rich J., who found it unnecessary to answer the question. The majority answered question 3 in the affirmative. I t is clear from their judgments that all the judges, with the possible exception of Rich J., proceeded on the basis that the deceased’s estate never became entitled to a share in the value of the goodwill and that the majority regarded the deceased’s share in goodwill as something severable from his interest in the other assets of the partnership and passing or accruing to another person under s. 8 (4) (e). Their Lordships are unable to accept either of these propositions. In then’ Lordships’ opinion the interest of Milne in all the partnership assets, including goodwill, vested in his administrator on his death, although his executors would be bound, if the option were exercised, to transfer that interest to the purchaser at the price fixed in accordance with the partnership deed. For this reason their Lordships accept the alternative proposition advanced by Mr. Pascoe Hayward, Avith which Mr. Cross did not cĵ uarrel, that the whole of the deceased’s interest in the partnership property, including goodwill, Avas assessable to duty under s. 8 (3) (6). Being so assessable, it neces­ sarily follows that that interest cannot be assessable under s. 8 (4) which deals only with property not actually assessable as part

(l) (1944) 69 C.L.R., at pp. 286, 287.

(2) (1944) 69 C.L.R. 270.

88 C.L.R.] OF AUSTRALIA.

445

Pbivy

of the estate falling within s. 8 (3) but which is to be deemed to

CoVXCIL.

form a part of the estate.

1953-1954.

This conclusion is sufficient to dispose of the matter so far as the respondent’s case rests on s. 8 (4) (e), but their Lordships

P erpetual E xecutors

feel bound to add that they feel grave doubt whether considering

AXD

only the language of s. 8 (4) (e) the respondent can bring the facts

Trustees

Association

of this case within it. To do so he must rely on the exercise of

OF

the option, for it is plain that if it is not exercised, s. 8 (4) (e)

Australia

Ltd .

will have no application. That option under cl. 9 of the partnership

V.

F ederal Commis­

deed is to be deemed to have been given by the legal personal

representatives of Mr. Thomas, and on its being exercised there

sioner OF

comes into being a contract of sale between them and the option

Taxation.

holders. Such a transaction seems to their Lordships somewhat remote from a transaction of the kind which the language of

s.

on the decision of Hamilton J. (as he then was) in Attorney-General V. Boden (3) for the proposition that where a partnership deed provides that no allowance for goodwill should be made to a partner or his estate upon his death his interest in the goodwill did not pass upon his death.

8 (4) (e) appears to contemplate.

In Attorney-General v. Boden (3) the deceased had carried on business in partnership with his sons under a deed which contained a provision that on his death his share was to accrue to his sons in equal shares subject only to their paying out to his represen­ tatives the value of his share as at the date of his death ascertained by proper valuation without any valuation of or allowance for goodwill. The Crown claimed duty under s. 2 (1) [h) of the Finance Act 1894 (Imp.) (57 & 58 Viet. c. 30), on the footing that the deceased’s interest in goodwill was property in which the deceased had an interest ceasing on the death of the deceased. The defendant claimed that the share in goodwill passed on the death of the deceased under s. 1 of the Finance Act 1894, and therefore could not fall within the ambit of s. 2 in view of the decision of the House of Lords in Earl Cowley v. Inland Revenue Commissioners (4). They submitted, however, that it was really unnecessary to decide this point since the transaction between the father and his sons fell within the ambit of s. 3 (1) of the Act, which exempts from duty property passing on the death of a deceased by reason only of a bona-fide purchase from the person under whose disposition the property passes where such purchase was made for full consideration

(1) (1944) 69 C.L.R. 270.(3) (1912) 1 K.B. 5.39.

(2) (1944) 69 C.L.R., at p. 282.

(4) (1899) A.C. 198.

446 HIGH COURT

[1953-1954.

i ’l i rv v

in nionoy or money’s worth paid to the vendor for his own use and beiK'fit. Hamilton J. upiield this submission. His decision on this point would have been sufficient to dispose of the case, but he also

CoiJN('lL.

I ’HRl’KTl'ALdealt with the other point which he described as a minor point (1).

I ’iXlOCUTOK.S

ANDOn this he came to the conclusion (2) that the case fell within

'rul'STIClOS

s. 2 (1) (5) and not within s. 1. Their Lordships are unable to

A s s o c ia t io n

agree with this view.

In their opinion the deceased partner’s

OK

A kstkaiaa

interest in goodwill in such a case must pass with his interest

Lt d .

V.in the other assets to his legal personal representative, and the

F udehal fact that its value is not to be taken into account in calculating

Commis­

sioner OF

the price receivable by the estate for his interest in the partnership

Taxation.

is irrelevant.

Mr. Pascoe Hayward however, submitted that even if their Lordships came to the conclusion they have indicated, their Lordships ought to dismiss the appeal either (a) on the ground that the record of the hearing before Williams J. indicated an agreement that if the share in goodwill formed part of the assessable estate (and their Lordships have indicated that it is assessable property under s. 8 (3)), its value was agreed at £20,000; and (b) on the ground that the contention advanced by Mr. Cross which their Lordships consider well founded, viz., that the share in goodwill was assessable only under s. 8 (3), was not open to the appellant as it was not to be found either in the reasons in their case or in their notice of objection.

So far as the first of these points is concerned, Mr. Pascoe Hayward himself said that there are three possible views as to the ambit of the argum ent: (1) that the parties were envisaging that Mr. Thomas’s share in the goodwill was assessable under s. 8 (4) but his interest in the other assets was assessable under s. 8 (3), in which event the agreed value would not apply if his share in all the assets were assessable under s. 8 (3) ; (2) that the agreed value was to apply if the deceased’s share in all the assets including goodwill fell within s. 8 (4) (e) ; (3) that the agreed value was binding no matter under which sub-section the deceased’s share in the assets fell to be assessed.

Seeing that the parties were obviously dealing with the matter on the footing that the issue would depend on whether the majority or the minority view in Milne’s Case (3) was to prevail, the first of these alternatives seems the most probable, but their Lordships were informed that there was some correspondence relating to the

(]) (1912) 1 K.B. at p. 555. (3) (1944) 69 C.L.R. 270.

(2) (1912) 1 K.B.at JJ. 556.

88 C.L.R.] OF AUSTRALIA.

447

Privy

agreement which was not available to their Lordships. In these

Council.

circumstances their Lordships are not prepared to say more than 1953-19.54.

that it would obviously be improper for them to hold that the

Perpetual Executors

appellants are precluded by the agreement from succeeding on

this appeal.

AND

Trustees

On the second point their Lordships need not spend any time in examining the appellant’s case, for their Lordships are satis­

Association

OF

fied that if the contention advanced by Mr. Cross was within the

Australia

Ltd.

ambit of the notice of objection, it is sufficiently covered by

V.

Federal Commis­

their third reason, to which their Lordships have already referred.

If, however, it was not within this notice of objection a question

sioner OF

of jurisdiction would arise since s. 27 (3) of the Estate Duty

Taxation.

Assessment Act 1914-1942 limits the objector to grounds stated in his objection. Had the appellant confined his notice of objection to stating as his ground that (see par. 25 of the notice of objection), “ the estate of deceased is not dutiable in respect of any proportion of goodwill of the said firm of Maples pursuant to s. 8 (4) (e) ” there could have been no doubt but that the appellant was entitled to argue that it could not be deemed to be part of the estate under s. 8 (4) (e) because it was actually part of the estate under s. 8 (3). Mr. Pascoe Hayward submits that the appellant is deprived of his right to present this argument because, as he says, the preceding paragraphs show that par. 25 was not directed to this point. Their Lordships, however, think that the necessary foundation for the argument is to be found in pars. 23, 24 and 25 when read together, and must therefore refuse to dismiss the appeal on the ground that the argument falls outside the grounds stated in the objection.

Mr. Cross invited their Lordships, if they reached this con­ clusion, to allow the appeal and amend the assessment by striking out the £20,000 added under s. 8 (4) (e) in respect of the deceased’s proportion of the goodwill of Maples. Their Lordships are not prepared to adopt this course, which would mean that the respon­ dent could only claim duty in respect of this item under s. 8 (3) if he could make a new assessment. Their Lordships do not know whether this would be possible or not and do not find it necessary to investigate the possibility. The appellant has succeeded only on a ground which was not argued either before Williams J. or before the Full Court. In these circumstances their Lordships consider that the proper course to adopt is to declare that the deceased’s interest in the goodwill, as in the other assets of the partnership, is part of the testator’s estate within s. 8 (3) and

448 HIGH COURT

[1953-1954.

PmvY

CoUNClh.is not to l)c di'cnicd to be part thereof under s. 8 (4) and to remit

tlie iimtter to the High Court to make such order as the High Court nuiy thhdc fit on tlie footing of this declaration. This order

] 95:5-1 !)r)4.

I'Hui’i'yruAi.will enable the ])a,rties to advance before the High Court such

K xh ou tou s

AND

arguiiKuits as they may think proper having regard to that declara­

'riil’STIOKStion. 1 n particulax, but without restricting in any way the generality

A sso cia tio n

OKof the axgumcnts, (1) it will enable the respondent to allege that

A i ' stu alia

the agreement referred to on p. 17 of the record binds the appellant

Lt d .

i > .

to accept the figure of .£20,000 as the value of the deceased’s

FICO URALinterest in the goodwill under whatever subsection it is held to

Commis­

sioner Gif' form part of the assessable estate ; (2) it will enable the appellant

'I'AXATrON.to allege (a) that the respondent is bound by the valuation made

pursuant to the partnership deed which represents the utmost the estate can ever receive ; alternatively, (b) that if it is open to the respondent to go behind the figure thus ascertained, the existence of the option must be taken into account in arriving at the value of Mr. Thomas’s interest in the partnership assets. Both these points were raised before their Lordships, but in view of the advice which their Lordships propose to tender to Her Majesty, their Lordships express no opinion thereon.

For these reasons their Lordships will humbly advise Her Majesty to allow the appeal and set aside the orders of Williams J. and of the Full Court and to declare that the share and interest of the late Frederick Charles Henry Thomas in the assets of the firm or partnership carried on under the name or style of “ Maples,” including the goodwill thereof, was part of his estate within sub-s. (3) of s. 8 of the Estate Duty Assessment Act 1914-1942, and that no part of such share or interest is to be deemed to be part of his said estate under sub-s. (4) of the said section, and to refer this matter back to the High Court of Australia to reconsider the objection of the appellant to the assessment made by the respondent in the light of the declaration aforesaid and in particular, but without prejudice to the generality of the foregoing, to determine (a) whether any binding agreement has been made between the appellant and the respondent which fixed the value of the said share and interest of the said Frederick Charles Henry Thomas in the business and assets of the said firm, including the goodwill thereof, and if not, (b) what value ought to be placed thereon under s. 8 (1) of the said Act having regard to all relevant circum­ stances.

If upon such reconsideration by the High Court the appellant secures a reduction in the assessed value of the said estate, the

88 C.L.K.] OF AUSTRALIA.

449

Privy

respondent shall pay the appellant’s costs of the appeal to this

Council.

Board. If the appellant fails to secure such reduction each party 1953-1954.

shall pay his own costs of such appeal. The costs of all the pro­

Perpetual E xecutors

ceedings in the High Court of Australia are to be in the discretion

of that court.

AND

Trustees

Association

Solicitors for the appellant, CrowtJier & Gray.

OF

Solicitors for the respondent, Coivard, Chance d Co.

Australia

Ltd .

V.

F ederal Commis­

R. T). B.

sioner OF

Taxation.

VOL. LXXXVIII.— 29