Scottish Court of Session Decisions

The Finance Act 1894 (57 and 58 Vict. cap. 30), enacts as follows:—Section 2, sub-section 3—“Property passing on the death of the deceased shall not be deemed to include property held by the deceased as trustee for another person under a disposition not made by the

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deceased or under a disposition made by the deceased more than twelve months before his death, where possession and enjoyment of the property was bona fide assumed by the beneficiary immediately upon the creation of the trust and thenceforward retained to the entire exclusion of the deceased or of any benefit to him by contract or otherwise.”—Section 7, subsection 1—“In determining the value of an estate for the purpose of estate duty, allowance shall be made for reasonable funeral expenses and for debts and incumbrances; but allowance shall not be made ( a) for debts incurred by the deceased, or incumbrances created by a disposition made by the deceased, unless such debts or incumbrances were incurred or created bona fide for full consideration in money or money's worth, wholly for the deceased's own use and benefit, and take effect out of his interest.”

The Lord Advocate, for and on behalf of the Commissioners of Inland Revenue, brought an action against Dame Mary Agnes Winwood Hughes or Gunning, widow of the late Robert Halliday Gunning, doctor of medicine, and others, exeutors-nominate of the said Robert Halliday Gunning, acting under the joint will executed by him and the said Dame Mary Agnes Winwood Hughes or Gunning, dated 5th November 1896, and recorded in the Court Books of the Commissariot of Edinburgh 3rd May 1900, concluding for payment of the sum of £2013 as estate duty remaining due and payable in respect of property passing on the death of the said Robert Halliday Gunning, with interest on said sum at 3 per cent. from the date of his death.

Dr Gunning died in London on 22nd March 1900. He died domiciled in Scotland, and the defenders gave up an inventory of his estate. The total value of the estate belonging to Dr Gunning at the time of his death, according to the inventory, amounted to £161,676, 0s. 1d. From this were deducted funeral expenses and debts incurred by the deceased amounting, as represented by the schedules to the inventory, to £80,866, 6s. 8d. This left a net remainder of £81,009, 14s. 4d., in respect of which sum estate-duty, levied at the graduated rate of 5 1 2; per cent., and amounting to £4455, was paid by the defenders with interest.

Among the debts which were scheduled in the inventory and were deducted in bringing out the net value of the estate were included a series of bonds granted by the deceased in favour of the University Court of the University of Edinburgh and certain other academic, scientific, and religious bodies for the endowment of prizes and the promotion of certain educational and philanthropic purposes. These bonds were granted in 1900, and amounted with the interest thereon at the date of the grantor's death to the total aggregate amount of £26,862.

The pursuer averred as follows:—“(Cond. 3) When the various bonds were granted it was the understanding of parties that Dr Gunning should make payment as and when it suited his convenience.… He continued to pay interest on the bonds at 4 per cent. or latterly at 3 per cent. (Cond. 4) For the purpose of estate duty the obligations constituted by the said bonds were not such debts as could properly form a deduction from the value of the property passing on the deceased's death. They were not, in fact, debts incurred for any consideration in money or money's worth, or for the deceased's own use and benefit. They were gratuitous obligations undertaken spontaneously, and were simply acts of bounty on the part of the deceased. (Cond. 8) If, in conformity to the provisions of the statutes, no allowance had been taken on account of the debts in the said bonds, the net value of the estate chargeable with duty in place of being £81,009, as returned in the inventory, would have been £107,871, or for the purposes of assessment, £107,800. This is the true dutiable value of the estate, and the duty on this sum leviable at the graduated rate of 6 per cent. amounts to £6468, or a sum of £2013 greater than the amount of duty paid by the defenders on the return which they gave in their inventory.”

The defenders denied liability for the sum sued for, and averred:—“(Ans. 3) Said bonds set forth the considerations for which Dr Gunning, either at the date of granting said bonds or previously thereto, and in connection with obligations previously undertaken by him, became a debtor to the persons or institutions in whose favour the said bonds were granted. Said debts were incurred by Dr Gunning in order that he might advance certain scientific, religious, and philanthropic and public objects, of which he had for many years been a strong supporter, and for the advancement of which, according to his own views and schemes of management, he had paid and was willing to pay money. Dr Gunning became the debtor of the persons in whose favour the bonds were granted only on their undertaking to carry out according to his wishes the work or schemes for the establishment of which he was paying. Instead of granting said bonds at the dates when he did so Dr Gunning would have relieved himself of the obligations which he had undertaken by making payments in cash to the various persons or bodies who had undertaken to carry out his schemes; but owing to the fact that Dr Gunning's fortune was mostly invested in Brazil, and that Brazilian securities were, in consequence of a revolution, difficult to realise at the time, Dr Gunning granted the bonds referred to. Under these bonds payment was due and could have been enforced at the first term of Whitsunday after the bonds were granted. It is denied that there was any understanding between the parties to said bonds that Dr Gunning should make payment as and when it suited his convenience. (Ans. 4) Denied. Said debts were incurred for consideration in money and money's worth within the meaning of the Finance Act 1894, and form a good deduction from the estate of the deceased.

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In any event, when said bonds were granted by Dr Gunning and accepted by the various persons or bodies in whose favour they were granted, Dr Gunning became a trustee, holding his property in trust for said persons or bodies. The grantees, when they accepted said bonds, became bound to spend money on the advancement of certain objects, and did in fact so spend money and incur liabilities. Before accepting said bonds and incurring said liabilities, the grantees satisfied themselves, by examination into his affairs, of Dr Gunning's financial stability. As the result of their inquiries they were willing and arranged to accept said bonds instead of getting an immediate payment in cash. After said bonds were granted and accepted Dr Gunning continued to hold his securities under burden of a trust in favour of the grantees of said bonds. Possession and enjoyment of property affected by said trust was bona fide assumed by the grantees under the bonds immediately upon the creation of said trusts. The amount of said bonds is not to be deemed as property passing on the death of the deceased Dr Gunning.”

The bond, granted by Dr Gunning in favour of the University of Edinburgh, and dated 6th March 1890, was as follows:—“I, Robert Halliday Gunning, doctor of medicine … considering that, with the view of commemorating the jubilee of her Majesty Queen Victoria, of expressing my gratitude to my alma mater, and of enouraging the scientific study of medicine, I founded in the year 1887, being the jubilee year of Her Majesty's reign, eleven post-graduation prizes in the University of Edinburgh, of the value of £50 each, and each recurring triennially, known as the Gunning Victoria Jubilee Prizes, videlicet:—( First) the Munro Prize for Anatomy [here followed an enumeration of the other prizes]: And whereas I bound myself to the University to provide the capital sum of £5000 for the purpose of paying the said prizes and the expenses connected with the examinations, and I have meanwhile provided interest at the rate of 4 per centum per annum on the said sum: And whereas the University authorities have, since the year 1887, published a scheme for the said prizes in the University Calendar, and have otherwise advertised it, and it is right and proper that they should have from me a formal obligation for the foresaid capital sum of £5000 with the interest thereon: Therefore I do hereby bind myself, and my heirs, executors, and representatives whomsoever, without the necessity of discussing them in their order, to pay the sum of £5000 sterling to the University Court of the University of Edinburgh, incorporated by and in virtue of ‘The Universities (Scotland) Act 1889,’ and their successors, or to their assignees whomsoever, for the purposes of the said Gunning Victoria Jubilee Prizes, at the term of Whitsunday 1890, within the head office of the Commercial Bank of Scotland, Limited, George Street, Edinburgh, with a fifth part more of liquidate penalty in case of failure, and the interest of the said principal sum at the rate of 4 per cent. per annum from the date hereof to the foresaid term of payment, and half-yearly, termly, and proportionally thereafter during the not-payment of the same, and that at two terms in the year, Whitsunday and Martinmas, by equal portions, beginning the first term's payment of the said interest at the said term of Whitsunday next for the interest due preceding that date.… Declaring that the said sum of £5000, and interest thereof, shall be held by the said University Court in trust always for the purpose of endowing the foresaid ‘Gunning Victoria Jubilee Prizes,’ in terms of a scheme adjusted by me with the Senatus Academicus of said University, and of any revisions or improvements which may yet be made on said scheme by me during my lifetime, or after my death by the Faculty of Medicine in the said University. And I consent to the registration hereof for preservation and execution.”

The other bonds proceeded on much the same lines as the above, with variations in the language of the narrative clauses.

The bond above quoted and some of the other bonds were registered in the Books of Council and Session for preservation and execution.

The pursuer pleaded, inter alia, as follows:—“(1) To determine the value of the deceased's property for the purpose of estate duty, no allowance or deduction ought to be made of the debts in question, because they were not incurred for full consideration in money or money's worth, and wholly for the deceased's own use and benefit. (2) In respect that the sums contained in the said bonds are not debts for which, within the words and meaning of the Finance Act 1894, an allowance ought to be made, they fall to be reckoned in ascertaining the chargeable value of the property passing on the deceased's death, and the defenders are liable for the additional duty therefore due.”

The defenders pleaded, inter alia, as follows:—“(2) The sums contained in said bonds not forming part of the property of the deceased passing at his death, estate duty is not due thereon, nor is the amount of said bonds to be added in estimating the net value of the estate of the deceased. (3) The sums contained in said bonds having been held in trust by Dr Gunning for behoof of the grantees of the bonds under arrangements made between Dr Gunning and them, said sums fall within the exception contained in section 2, subsection 3, of the Finance Act 1894. (4) Separatim—The sums contained in said bonds being debts for which, in determining the value of an estate under section 7 of the Finance Act 1894, an allowance should be made, defenders were entitled to deduct said sums in estimating the net value of Dr Gunning's estate, and the defenders should accordingly be assoilzied from the conclusions of the summons.”