Die Jovis,
12° Julii 1951
Parliamentary
Archives,
HL/PO/JU/4/3/1010
HOUSE
OF LORDS
Lord
Simonds
Lord
Normand
Lord
Oaksey
Lord
Radcliffe
Lord
Tucker
ST. AUBYN
AND OTHERS
v.
ATTORNEY-GENERAL
(on behalf of His Majesty), et e contra
12th
July, 1951.
Lord
Simonds
MY LORDS,
This
appeal and cross appeal are brought from an order of the Court
of
Appeal, by which that Court as to the subject matter of the
appeal
reversed an order of Croom-Johnson, J., and as to the
subject matter
of the cross-appeal thought fit to make no order.
The facts
of the case are somewhat involved but present no real difficulty.
It
is in the application to them of the relevant sections of the
Finance
Act, 1940, that I have found it impossible to reach any
conclusion that is
wholly satisfactory.
I will
give a broad outline of the relevant facts supplementing it
as
occasion demands.
Immediately
before the execution by the late Lord St. Levan, who died
on the
10th November, 1940, and to whom I will refer as Lord St. Levan,
of
the instruments dated in March, 1927, which are next mentioned, he
was,
under a Resettlement dated the 26th April, 1879, tenant for
life in
possession of certain settled property consisting of (a)
freehold lands in
the counties of Devon and Cornwall (b)
investments representing capital
moneys arising under the
Resettlement and (c) equitable interests which by
virtue
of the Law of Property Act, 1925, represented certain
undivided
shares in land which at the date when that Act came
into operation were
subject to the Resettlement. The whole of the
settled property was under
the Resettlement and a Deed Poll dated
the 9th January, 1905, subject to
an overriding general power of
appointment exercisable by Lord St. Levan
and Sydney Alexander
Ponsonby (hereinafter called " Mr. Ponsonby ") who
was
one of the trustees of the Resettlement but had no beneficial
interest
thereunder. The subsequent limitations of the
Resettlement, as varied by
the said Deed Poll and other
instruments, were such as to cause the settled
property to
devolve together with the Barony of St. Levan, which on the
death
of Lord St. Levan without having had a son devolved on and is
now
held by his nephew Francis Cecil St. Aubyn.
On the
21st March, 1927, St. Aubyn Estates Ltd. (hereinafter called
"
the Company ") was incorporated under the Companies Acts, 1908
to 1917
(by the name of St. Aubyn Settled Properties Ltd. which
was afterwards
changed) with a nominal capital of £200,000
divided into 200,000 shares
of £1 each with power to issue
any part of its capital with such preferential
rights as might be
thought expedient. The Company's Memorandum of
Association was
subscribed by seven persons, including Lord St. Levan and
Mr.
Ponsonby, each of whom agreed to take one share. These seven
shares
were held by the subscribers as nominees of the Trustees
of the Resettle-
ment. By the Company's Articles of Association
it was provided that Lord
St. Levan should be the Governing
Director of the Company.
By a Deed
Poll dated the 23rd March, 1927, Lord St. Levan and Mr.
Ponsonby
exercised their overriding power of appointment in such manner
as
to authorise the transactions next mentioned.
By an
Agreement dated the 24th March, 1927, to which Lord St. Levan,
Mr.
Ponsonby and the Company were parties it was agreed that the
whole
of the settled property should be sold to the Company for
£1,700,000 of
which £950.000 was to be paid to the
Trustees of the Resettlement (herein-
after called " the
Trustees ") in cash on completion of the sale (which was to
2
take place
on the 26th March, 1927) and the balance of £750,000 was to
be
paid to the Trustees in cash by 40 half yearly instalments of
£18,750
each (the first payment to be made on 24th June,
1927) without interest
except that any instalment not paid within
21 days of becoming due was
to carry interest at 5 per cent, per
annum from the date on which it
ought to be paid until actual
payment thereof.
On the
same date (the 24th March, 1927) the Company allotted 100,000
7
per cent. Cumulative Non-participating Preference shares of £1
each to
Lord St. Levan at par and 49,993 Ordinary shares to the
Trustees at a
premium of £16 a share.
By a Deed
dated the 25th March, 1927, Lord St. Levan as tenant for
life
directed, and he and Mr. Ponsonby in exercise of their overriding
power
of appointment ratified such direction, that the Trustees
should invest the
capital money subject to the Resettlement in
Ordinary shares of the Company
at the premium required by the
Company.
On the
26th March, 1927, the sale to the Company of the freehold lands
and
equitable interests which I have already mentioned was completed
by
two conveyances of that date. The sales to the Company of the
investments
already mentioned were completed on or about the same
date by appropriate
separate instruments. The consideration
payable immediately in cash
(£950,000) was so paid but as to
£850,000 immediately repaid by the Trustees
to the Company
in consideration of the issue to them or their nominees of
50,000
Ordinary Shares of the Company (including the shares for which
the
Memorandum had been subscribed) at the price of £17 a share.
The
balance of £100,000 was dealt with as hereafter stated.
The net
result of the transactions so far described was that the
property
formerly subject to the Resettlement had been converted
into (a) 50,000
fully paid Ordinary Shares of the Company
(b) the right to receive from
the Company a capital sum of
£750,000 by the instalments already mentioned
and (c)
the above mentioned sum of £100,000 paid by the Company to
the
Trustees.
By a Deed
Poll dated the 28th March, 1927, Lord St. Levan and Mr.
Ponsonby
in exercise of their overriding power appointed that the said
sum
of £100,000 and the said sum of £750,000 payable by
instalments and
any interest which might become payable in respect
of any instalment should
be held upon trust for Lord St. Levan and
that he should be entitled
thereto for his own sole use and
benefit instead of for his life only.
The
Trustees thereupon paid over the said sum of £100,000 to Lord
St.
Levan and he immediately paid the like amount to the Company
in con-
sideration of the issue to him of 100,000 Preference
Shares fully paid.
By a
further, and final, Deed Poll dated the 29th March, 1927, Lord
St.
Levan and Mr. Ponsonby in exercise of their overriding power
appointed
new trusts of (in effect) the whole of the property then
remaining subject
to the Resettlement i.e., the 50,000 issued
Ordinary Shares of the Com-
pany. The terms of the new trusts so
declared were somewhat complicated
but they admittedly had the
effect of extinguishing the life interest of Lord-
St. Levan in
the 50,000 Ordinary Shares and of excluding him from all
benefit
so far as those shares and the income thereof were concerned.
The
following further facts are not now in dispute: —
That the
Trustees are to be regarded for the purposes of section
43 (2)
(a) of the Finance Act, 1940, as having assumed bona
fide
possession and enjoyment of the 50,000 Ordinary Shares
immediately
after the determination by the Deed Poll of the 29th
March, 1927,
of the late Lord St. Levan's life interest therein.
That the
Company is a Company to which section 56 of the
Finance Act,
1940, applies and was concerned in associated operations
(as
defined by section 59 of that Act) of which the determination
of
Lord St. Levan's life interest was one.
Lord St.
Levan having, as I have said, died on the 10th November, 1940,
claims
for estate duty were made against his executors in respect of
the
outstanding instalments of the purchase money and the 100,000
Preference
3
shares
which he still retained and these claims were admitted and paid.
But
other claims also were made which are the subject of the
present appeal and
cross-appeal. They were (a) a claim
under section 43 of the Finance Act,
1940, against the Appellants,
the present Trustees of the Resettlement, for
estate duty on the
50,000 Ordinary shares of the Company, and, alternatively,
(b)
a claim under section 46 of that Act against the Company for
estate duty
on a proportion of the Company's assets corresponding
to the benefits
accruing to Lord St. Levan from the Company. These
claims were not
admitted and proceedings were accordingly begun by
English Information for
their enforcement. On the 20th May, 1949,
Mr. Justice Croom-Johnson
dismissed the information in regard to
both claims. His Majesty's Attorney-
General appealed to the Court
of Appeal, which allowed the appeal under
claim (a) but
made no order upon claim (b). From that order the
Appellant
Trustees have appealed to this House in respect of claim
(a), and in respect
of claim (b) the
Attorney-General has similarly appealed. To his appeal the
Trustees
and the Company are respondents. The two claims are for the
purpose
of the present proceedings admitted to be strictly alternative and
it
was for that reason that the Court of Appeal, having decided in
favour
of claim (a), refused to make any order upon claim
(b). In the result your
Lordships are deprived of the
assistance which you would otherwise have
had from the
consideration by the learned Judges of the Court of Appeal
of the
very difficult problems that arise under the latter claim.
The two
claims, my Lords, are not only alternative but wholly independent
of
each other, and I find it convenient to deal with them separately.
I have
said that the first claim arises under section 43 of the Finance
Act,
but this claim must be considered under two aspects. For the
Crown,
while contending that the claim would be valid, even if
section 43 stood
alone, invoke also the provisions of section 56
if their primary claim fails.
I propose therefore first to
consider the question whether there is a valid
claim under section
43 and for the time being to disregard section 56.
Section
43, so far as relevant and in force at the death of Lord St.
Levan,
provided as follows :—
" 43.
(1) Subject to the provisions of this section, where an interest
"
limited to cease on a death has been disposed of or has determined,
"
whether by surrender, assurance, divesting, forfeiture or in any
other
" manner . . . and whether for value or not, after
becoming an interest
" in possession,—
" (a)
if apart from the disposition or determination the property
"
in which the interest subsisted would have passed on the death
"
under section one of the Finance Act 1894, that property shall be
"
deemed by virtue of this section to be included as to the whole
"
thereof in the property passing on the death ....
" (2)
Where the relevant disposition or determination was bona fide
"
effected or suffered three years before the death . . . the
preceding
" sub-section shall not have effect—
" (a)
if bona fide possession and enjoyment of the property in
"
which the interest subsisted was assumed immediately thereafter
"
by the person becoming entitled by virtue of or upon the dis-
"
position or determination and thenceforward retained to the entire
"
exclusion of the person who had the interest and of any benefit
"
to him by contract or otherwise . . . ."
I apply
the provisions of this section to the facts that I have stated.
On
the 27th March, 1927, Lord St. Levan had an interest in
possession limited
to cease on his death in the settled property
which on that date had assumed
the form of (1) 50.000 Ordinary
shares of the Company and (2) the sum
of £750,000 payable in
the instalments that I have mentioned and (3) the
sum of £100,000
paid or immediately payable by the Company. But he had
also
jointly with Mr. Ponsonby an overriding general power of
appointment
which could be exercised so as to vest all or any part
of the settled property
in him absolutely. They so exercised it as
to vest in him the properties
I have numbered (2) and (3), and,
when they had done so, he surrendered
his life interest in the
Ordinary shares. It is agreed that bona fide possession
4
and
enjoyment of the shares was assumed immediately thereafter by
the
persons becoming entitled upon the determination of Lord St.
Levan's
interest. But was it—and this is the only
question—thenceforth retained to
the entire exclusion of
Lord St. Levan and of any benefit to him by contract
or otherwise?
My Lords,
1 cannot think that any doubt could be entertained upon this
matter
but for the use which the Crown seeks to make of certain
decisions,
particularly A.G. v. Worrall [1895] 1 QB 99 and Grey v. A.G. [1900]
A.C. 124, to which I
will refer later. If A., being the owner in fee of an
estate in
Yorkshire and an estate in Wiltshire, gives outright to B. his
estate
in Yorkshire, it is an irrelevant circumstance that he retains his
estate
in Wiltshire: equally it is irrelevant, if, being tenant
for life of the two
estates, he surrenders his interest in one and
retains it in the other: and
equally so if, his interest being not
in two geographically separate estates
but in land and capital
moneys subject to the same settlement, he surrenders
his interest
in the one form of property and retains it in the other. But let
it
be supposed that he is neither the owner in fee, nor the tenant for
life
and nothing more, but that he is tenant for life with an
overriding general
power of appointment, by virtue of which he can
dispose of all or any
part of the settled property at his absolute
discretion. I cannot doubt
that, if he chooses so to exercise the
power as to make some part of the
settled properly his own, it is
wholly irrelevant that by a contemporaneous
or later transaction
he surrenders his life interest in other parts of it. It
is true
that he has disposed of his life interest in one part of the
property
and it is true that he has enlarged his life interest in
the other part of it
into an absolute interest, but these two
truths do not add up to the
proposition that the property in which
he has surrendered his interest is
not retained by the donees to
the entire exclusion of him and of any
benefit to him by contract
or otherwise.
I do not
think that the examples that I have given of cases, where duty
would
not be exigible in respect of property in which a life interest
had
been surrendered, were or could be seriously challenged. If
so, it can
only be due to a radical misconception of the facts in
the present case
that the learned Attorney-General pressed the
claim under section 43 unaided
by section 56. For though truly the
overriding power of appointment was
not vested in Lord St. Levan
alone, there is nothing to suggest that there
was a bargain of any
kind between him and Mr. Ponsonby. They were
together masters of
the situation, and, if they thought fit to appoint to Lord
St.
Levan an absolute interest in part of the settled property, the
effect,
so far as section 43 is concerned, is precisely the same
as if Lord St. Levan
had had the sole power and had exercised it.
It is not necessary to determine
what the result might be if there
had been a bargain between Lord
St. Levan and the remaindermen or
even between Lord St. Levan and Mr.
Ponsonby. It is sufficient
that these two in their united wisdom thought
fit to do what he in
his single wisdom, had he had the sole power, might
have done. I
am therefore of opinion that the claim for duty upon the
Ordinary
shares, so far as it is based on section 43 alone, is not
well
founded. 1 will defer my observations upon the cases, which I
have men-
tioned, until an attempt has been made to discover the
scope and effect
of section 56.
Section 56
of the Finance Act, 1940, so far as relevant, provides as
follows
(the subsections being inverted for the sake of clarity):.—
" 56.
(2) Where a company to which this section applies was con-
"
cerned in the disposition or determination of an interest limited
to
" cease on a death effected or suffered as mentioned in
sub-section (2)
" of section 43 of this Act ... or was
concerned in any one or more
" of associated operations of
which the disposition or determination . . .
" formed one,
the conditions as to the entire exclusion of the person
" who
had the interest . . . and of any benefit to him, specified in the
"
said sub-section (2) ... shall be treated as having been satisfied
if
" and only if they would have been so treated in the
circumstances
" aforesaid."
5
The "
circumstances aforesaid " so referred to are those stated in
sub-
section (1) of the same section 56 in the following words:—
" the
following circumstances, namely, if the assets of the company
"
had been held by it on trust for the members thereof and any other
"
person to whom it is under any liability incurred otherwise than
"
for the purposes of the business of the company wholly and
exclusively,
" in accordance with the rights attaching to the
shares in and debentures
" of the company and the terms on
which any such liability was
" incurred, and if the company
had acted in the capacity of a trustee
" only with power to
carry on the business of the company and to
" employ the
assets of the company therein."
It is, as
I have said, admitted that the Company is a company to which
the
section applies. The assets of the Company consisted of the
settled
property or the property for the time being representing
it, and the members
were at the relevant date (i.e., immediately
before the surrender by Lord
St. Levan of his life interest in the
Ordinary shares) the Trustees as holders
of the Ordinary shares
and Lord St. Levan as holder of the Preference
shares and as the
person to whom the Company owed the instalments of
purchase money.
This flows from the definitions of " member " and
"
debenture " in the Act. Then—and here I paraphrase the
subsection—
the conditions as to the entire exclusion of
Lord St. Levan from the property
in which he surrenders his
interest, i.e., the Ordinary shares, and of any
benefit to him by
contract or otherwise are only satisfied, if they would
have been
so treated, i.e., would have been satisfied, if the Company
had
held its assets on trust for the Trustees and Lord St. Levan in
accordance
with the rights attaching to the Ordinary and
Preference shares and the
Debenture.
My
Lords, 1 must admit that I find this a bewildering conception.
The
Court of Appeal in a judgment delivered by Jenkins, L.J.,
found it possible
to give a meaning to the section and summarised
its conclusion in words
which I think it worth while to quote. "
We think ", they said, " that
" for this purpose '
the property in which the interest subsisted ' within the
"
meaning of section 43 (2) (a) must be taken as being the settled
property as
" it stood before the sale to the company, the
subsequent creation of the
" different equitable interests
which the statutory hypothesis supposes being
" merely in the
nature of a preliminary carving up of the property into the
"
appropriate beneficial interests with a view to securing the desired
benefit
" to the deceased out of it upon the intended
determination of his life interest.
"
But even if we are wrong in this, and ' the property in which the
"
' interest subsisted ' must, as Sir Andrew contended, be considered
as
" consisting only of the residue of the property remaining
after provision
" for the other interests, we are satisfied
that the benefit taken by the
" deceased in the shape of the
creation and vesting in him of the right
" to receive the
half-yearly instalments, though on this view not taking effect
"
out of the ' property in which the interest subsisted, ' was on the
facts so
" clearly referable to and connected with the
determination of the deceased's
" life interest in that
property as to constitute a fatal objection to exemption
"
under section 43 (2)."
It had
been stated earlier in the judgment that the application of
the
statutory hypothesis (as it was conveniently called) was to
eliminate com-
pletely the element of sale from the Trustees to
the Company and the
consequent conversion of the property and to
make the case stand for
the purpose of section 43 as if the
property had been transferred to the
Company as trustee upon trust
(1) to pay thereout to the Trustees £750,000
by the
instalments and on the dates mentioned to be held by them as
capital
moneys on trust for Lord St. Levan for life with
remainders over, (2) subject
thereto to raise and pay to Lord St.
Levan £100,000, on whatever future
event should be taken as
corresponding for the purposes of the hypothetical
trust to the
winding-up of the Company and in the meantime to pay him
interest
on that sum at 7 per cent, per annum out of the net income of
the
property, and (3) subject thereto upon trust both as to income
and
capital for the Trustees upon trust for Lord St. Levan for
life with remainders
6
over in
accordance with the terms of the settlement. And this view
is
emphasised by saying that the right to receive the instalments
of the £750,000
is converted into "an equitable
interest charged by way of primary trust
" on the entire
income and capital of the settled property as it stood before
"
the sale to the Defendant Company ".
My Lords,
I will assume that the Court of Appeal rightly stated the
effect
of applying the statutory hypothesis to the facts of this case.
The
question whether duty is exigible still remains one of great
difficulty.
Whatever
the words, which have appeared in a series of Acts, might
have
meant to your Lordships if the matter were res integra, it
cannot in
face of the decision in A.G. v. Worrall be denied
that it is possible for
possession and enjoyment of property not
to be retained by the donee to
the entire exclusion of the donor
or of any benefit to him by contract or
otherwise, though the
donor himself no longer has any sort of interest in it.
But the
words, and particularly the word " exclusion ", are
singularly inapt
to cover a benefit which does not arise by way of
reservation out of that
which is given, and I am not disposed to
travel further than I am constrained
by authority along a line of
interpretation which appears to me difficult
to justify.
Two recent
cases in the Privy Council are of great assistance upon this
matter.
In Munro v. Commissioner of Stamp Duties [1934] AC 61, the
facts were that the owner of a large area of land in New
South Wales, on
which he carried on the business of a grazier, in
1909 agreed with his
six children that thereafter the business
should be carried on by him and
them as partners at will, the
business to be managed by him and each
partner to get a share of
the profits. In 1913 he transferred by way of gift
to his children
or to trustees for them all his right, title and interest in
the
land. He remained a partner in the business until his death in
1929
and duty was then claimed in respect of the land because, as
it was said,
it had not been retained by the donees to the entire
exclusion of him or
of " any benefit to him of whatsoever
kind or in any way whatsoever whether
" enforceable at law or
in equity or not". But upon this Lord Tomlin,
delivering the
judgment of the Board, said, " What was comprised in the
"
gift was, in the case of each of the gifts to the children and the
trustees,
" the property shorn of the right which belonged
to the partnership, and
" upon this footing it is in their
Lordships' opinion plain that the donee
" in each case
assumed bona fide possession and enjoyment of the gift
"
immediately upon the gift and thenceforward retained it to the
exclusion
" of the donor. Further, the benefit which the
donor had as a member
" of the partnership in the right to
which the gift was subject was not in
" their Lordships'
opinion a benefit referable in any way to the gift. It
" was
referable to the agreement of 1909 and nothing else, and was not
"
therefore such a benefit as is contemplated by section 102,
subsection
" (2) (d)".
Here are
words of great significance. The benefit, if it is to attract duty
to
the subject of the gift, must be a benefit referable to it. The words
are
not easy to construe but they clearly import that the owner of
property
may in certain circumstances retain a benefit when he
makes a gift and yet
the subject matter of the gift be not
dutiable.
More
important is the case of Commissioner of Stamp Duties for
N.S.W.
v. Perpetual Trustee Company Ltd. [1943] AC 425, for in that case the
Judicial Committee took the opportunity
of reviewing the earlier cases
and in particular Worrall's
case, Grey's case, and In re Cochrane [1905]
2
I.R. 626 and in the Court of Appeal [1906] 2 I.R. 200. And it is
to
the latter case that I must first turn, for the judgment of the Irish
Court
of Appeal was expressly approved by Lord Russell of Killowen
delivering
the opinion of the Board and its bearing on the case
now under appeal will
be seen to be immediate. For that reason I
venture to repeat the facts
substantially as stated by him. Sir
Henry Cochrane was the mortgagee
of estates in Mayo in a sum of
£15,000 with interest at 41/2 per cent. The
mortgage debt
and securities having been vested in trustees, Sir Henry
by an
indenture made in 1902 declared that they were to stand possessed
7
thereof in
trust out of the income to pay in each year to his daughter,
Mrs.
Day, the sum of £575 for her life, and after death upon trust
as to
the principal sum for her children as therein mentioned with
power to
Mrs. Day to appoint an annual sum to a surviving husband
during his life.
If no child of Mrs. Day attained a vested
interest in the trust funds,
they were to be held in trust for Sir
Henry absolutely and there was also
a trust of the balance, if
any, of the yearly income for Sir Henry absolutely.
The trustees
received the interest of the mortgage which amounted to £675
per
annum and paid £575 to Mrs. Day and the balance to Sir
Henry.
In March, 1904, he directed them to pay the whole income to
Mrs. Day,
but, as he died within a year thereafter, this direction
could not affect the
claim to duty which the Crown made in respect
of the entire sum of £15,000
as property passing on his
death under section 2 (1) (c) of the Finance
Act, 1894. It
was held by Palles, C.B., and his decision was affirmed by
the
Court of Appeal, which consisted of Walker, L.C., and Fitzgibbon
and
Holmes, L.JJ., that duty was not payable in respect of the
£15,000 but only
in respect of the values of Sir Henry's
interest in the balance of income
and his contingent interest in
the principal sum. It is important to see how
Lord Russell of
Killowen summarises the judgment of the Chief Baron.
" Gift",
he says, " in the context meant beneficial gift. A person who
"
declares trusts of property only gives the beneficial interests
covered by
" the trusts. Everything else he retains and does
not give; and there is an
" entire exclusion of the donor
from the property taken under the disposition
" of the gift.
Sir Henry Cochrane obtained no benefit either by way of
"
reservation out of the gift, or collaterally in reference to the
gift." Then,
after citing Holmes, L.J., he said, " If In
re Cochrane was rightly decided, as
" their Lordships
think it was, it covers the present case ". Lord Russell
of
Killowen then proceeded to a close analysis of Grey v.
Attorney-General,
convincingly showed that it was not
inconsistent with In re Cochrane and
said of it: "
There is nothing laid down as law in that case which conflicts
"
with the view that the entire exclusion of the donor from possession
and
" enjoyment which is contemplated by section 11 (1) of
the Act of 1889
" is entire exclusion from possession and
enjoyment of the beneficial
" interest in property which has
been given by the gift, and that possession
" and enjoyment
by the donor of some beneficial interest therein which
" he
has not included in the gift is not inconsistent with the entire
exclusion
" from enjoyment and possession which the
sub-section requires."
It
followed from the approval given to the decision in In re
Cochrane
that the claim against the Perpetual Trustee
Company failed. In that case
a settlor vested certain shares
in trustees, of whom he was himself one, upon
trusts for the
benefit of an infant son but with a resulting trust for himself
if
the son did not attain the age of 21. It was contended that as the
settlor
(a) was a trustee and (b) had an equitable
interest in reversion, there was
not an entire exclusion of him
and of any benefit to him of whatsoever
kind and in any way
whatsoever. The contention failed because the settlor
in his
capacity of donor " was entirely excluded from possession and
enjoy-
" ment of what he had given to his son .... In the
interval between the
" gift and his death, the settlor
received no benefit of any kind or in any
" way from the
shares, nor did he receive any benefit whatsoever which was
"
in any way attributable to the gift ". As Dixon, J., said in the
same case in
the High Court of Australia (64 C.L.R. 492 at 511),
"The settlement con-
" tained nothing defeating,
revoking or destroying any interest given. It
" contained no
reservation out of the interest given and no recompense or
"
benefit in reference to the interest given ".
It appears
to me, my Lords, that this is nothing but the logical application
to
a more complex situation of the proposition which I venture to
think
was self evident, viz., that the life tenant of two separate
pieces of property
can surrender his life interest in one and
retain it in the other without
duty becoming exigible in respect
of the former. The question is what
he has given: it may be a life
interest in part of the settled property ; it
may be a part of the
income of settled funds and that part may be a
fixed sum which is
payable in priority or the residue after the prior payment
of a
fixed sum thereout. I venture to think that much of the argument
that
was addressed to the House in this case and much of the confusion
8
that has
arisen in the past upon this admittedly difficult branch of the
law
have been due to the failure to bear in mind that that of
which enjoyment
is to be assumed and retained and from which there
is to be exclusion
of the donor and any benefit to him by contract
or otherwise is that which
is truly given, a proposition which is
obvious enough in the case of two
separate estates but more
difficult to follow and apply where trusts are
declared of a
single property which are not completely exhaustive in favour
of a
donee. It should at last be clear from the judgment of Lord
Russell
of Killowen that by retaining something which he has never
given a donor
does not bring himself within the mischief of the
section. I venture to repeat
in other words what I have already
said when dealing with section 43 alone,
for its underlying
principle is not altered by an alliance with section 56. In
the
simplest analysis, if A gives to B all his estates in Wiltshire
except Black-
acre, he does not except Blackacre out of what he
has given: he just does
not give Blackacre. And if it can be
regarded as a " benefit" to him that
he does not give
but keeps Blackacre, it is a benefit which is in no relevant
sense
(to use the language of Lord Tomlin) " referable " or (to
use that of
Lord Russell of Killowen) " attributable "
to the gift that he made of the
rest of the Wiltshire estate.
Applying this principle to the artificial situation
created by the
statutory hypothesis, I see no reason for saying that that which
Lord
St. Levan gave was not retained by the donee to the entire
exclusion
of him and of any benefit to him by contract or
otherwise. To avoid
misunderstanding I must add that different
considerations arise where the
donor obtains some benefit which is
" referable " to the gift or " attributable "
to
it. Thus, if in the present case there had been a bargain by which in
con-
sideration of the surrender of his life interest in part of
the settled property
Lord St. Levan had been enabled to enlarge
his life interest in another part
of it, it might well be that
following Worrall's case I should be bound to hold
that he
had not been excluded from the surrendered part. But as I
have
already pointed out, here was no bargain of any kind. What
Lord St. Levan
chose to give he gave, and what to keep he kept. He
made no bargain and
he was entirely excluded from, and obtained no
benefit referable to, that which
he gave.
My Lords,
in order to test the claim under section 43 aided by section
56 I
have been content to assume that the statutory hypothesis requires
that
the trusts upon which the Company is to be deemed to hold its
assets
should be written out in the terms advocated by the Crown
and accepted
by the Court of Appeal. And even upon this footing I
am satisfied that
the claim must fail if the principle established
in the cases that I have
cited is applied. But I am far from being
convinced that I am entitled
to write out the trusts in a manner
so favourable to the Crown's contention.
It would perhaps be
beyond the wit of the most skilful conveyancer to
set out with any
degree of accuracy the trusts which should correspond
with the
rights of the members of the Company as that word is defined:
for
the legal relations in which the members stand to each other and
to
the Company cannot be transmuted into those of trustee and
cestui que
trust. I need not however pursue this matter,
since I hold that even upon
the ground which the Crown has chosen
the claim for estate duty on
the Ordinary shares of the Company
fails and the appeal must be allowed.
The
alternative claim which arises under section 46 of the Finance
Act,
1940, must now be considered. It involves the consideration
of provisions
which are, I think, of unrivalled complexity and
difficulty and couched in
language so tortuous and obscure that I
am tempted to reject them as
meaningless.
I must set
out not only section 46 but certain other sections which have
to
be read with it. They are as follows:—
"
46.—(1) Where a person dying after the commencement of this
Act
" has made to a company to which this section applies a
transfer of
" any property (other than an interest limited to
cease on his death or
" property which he transferred in a
fiduciary capacity), and any benefits
" accruing to the
deceased from the company accrued to him in the
" three years
ending with his death, the assets of the company shall
" be
deemed for the purposes of estate duty to be included in the
property
9
"
passing on his death to an extent determined, in accordance with
"
subsection (2) of this section, by reference to the proportion that
the
" aggregate amount of the benefits accruing to the
deceased from the
" company bore to the net income of the
company.
" (2)
The proportion aforesaid shall be ascertained for each accounting
"
year that fell wholly or partly within the three years ending with
the
" death, by comparing the aggregate amount of the
benefits accruing
" to the deceased from the company which
accrued to him in that year
" with the net income of the
company for that year, and the extent
" to which the assets
of the company are to be deemed to be included
" in the
property passing on the death shall be the average of the
"
proportions so ascertained: ..."
"47.—(1)
The following shall be treated as benefits accruing to the
"
deceased from the company, that is to say—
" (a)
any income of the company, and any periodical payment
" out
of the resources or at the expense of the company, which
"
the deceased received for his own benefit whether directly or
"
indirectly, and any enjoyment in specie of land or other property
"
of the company or of a right thereover which the deceased had
"
for his own benefit whether directly or indirectly; . . ."
" (2)
In this Part of this Act the expression ' periodical payment'
"
means a payment by way of dividend or interest, a payment by way
"
of remuneration not being a single lump sum payment, and any other
"
payment being one of a series of payments, whether inter-connected
"
or not, whether of the same or of varying amounts and whether
"
payable at regular intervals or otherwise . . . ."
"
58.—(2) A person shall be deemed for the purposes of this
Part
" of this Act to have made a transfer of property to a
company if the
" property came to be included in the
resources of the company by the
" effect of a disposition
made by him or with his consent or of any
" associated
operations of which such a disposition formed one. . . ."
" (4)
References in this Part of this Act to a disposition's being made
"
by any person, to a power's being exercised or exercisable by any
"
person, or to any other act's being done by any person, include
"
references to its being made, or being exercised or exercisable, or
"
being done, by him and another jointly or by another at his
"
direction. . . ."
" (5)
References in this Part of this Act to a person having any
"
power or control or doing any act in a fiduciary capacity shall be
"
construed as references to his having that power or control or
doing
" that act in a fiduciary capacity imposed on him
otherwise than by a
" disposition made by him and in such a
capacity only."
The claim
of the Crown rests on two conditions; first, it must be shown
that
Lord St. Levan transferred property to the Company and did so in
some
other than a fiduciary capacity (for this I will coin the
expression
" non-fiduciary capacity "), and, secondly,
that benefits accrued to him from
the Company in the three years
ending with his death.
Upon the
first of these questions numerous points arise for discussion.
What
property was transferred to the Company by Lord St. Levan? So
far
as he transferred it, did he do so in a fiduciary capacity? What is
the
effect of the ratification and confirmation or further
assurance by Lord
St. Levan and Mr. Ponsonby contained in the
several deeds of conveyance
or transfer? What is the effect of the
several subsections of section 58 which
I have set out and how do
they operate inter se? These and other points
I must deal
with seriatim.
The first
point arises on the subscription by Lord St. Levan for
100,000
Preference shares. For these he paid cash according to the
ordinary use of
language. Did he then " transfer property "
to the Company within the mean-
ing of section 46? My Lords, I
have no hesitation in saying that the payment
of cash to a company
upon a subscription for shares is not a transfer of
property to
the company. No one, lawyer, business man or man in the street,
was
ever heard to use such language to describe such an act and I decline
to
10
stretch
the plain meaning of words in an Act of Parliament in order to
comply
with what is said to be its purpose. Lord
Wensleydale's familiar words, which
were cited by Lord Halsbury in
Tennant v. Smith [1892] AC 150, may again
be
repeated: " It is a well established rule that the subject is
not to be
" taxed without clear words for that purpose; and
also, that every Act
" of Parliament must be read according
to the natural construction of its
" words ". Lord
Halsbury adds that in a taxing Act it is impossible to
assume any
intention or governing purpose in the Acts to do more than
take
such tax as the statute imposes: it must be seen whether the tax
is
expressly imposed. This is true doctrine which I must bear in
mind as I
listen to the constant refrain of learned Counsel for
the Crown that this
or that is just the transaction at which this
or that section is aimed. The
question is not at what transaction
the section is, according to some alleged
general purpose, aimed
but what transaction its language, according to its
natural
meaning, fairly and squarely hits. Applying this, the one and
only
proper test, I say that when Lord St. Levan paid for his shares
he
did not transfer property to the Company.
The next
point arises in this way. The conveyance of the settled land to
the
Company, to which I have already referred, took the form of a
grant
by Lord St. Levan in exercise of (to put it shortly) his
Settled Land Act
powers and the extended powers given by the St.
Aubyn settlement and the
Deed Poll of the 23rd March, 1927. It is
beyond question, first, that this
grant operated to convey the fee
to the Company, and, secondly, that the
grant by Lord St. Levan as
tenant for life, whether made in pursuance of
statutory or
extended powers, was a transfer by him in a fiduciary capacity.
But
the conveyance contained not only a grant by Lord St. Levan. By
it
also he and Mr. Ponsonby in exercise of their general power of
appoinment
" by way of ratification " appointed and
confirmed unto the Company the
land which he had granted.
Therefore, it was said, the property was not
transferred by Lord
St. Levan in a fiduciary capacity but by him and Mr.
Ponsonby in a
non-fiduciary capacity. This is not a valid argument.
The
ratification and confirmation and appointment could have no
operation in
law except to the extent to which the grant by Lord
St. Levan was ineffective
to convey the fee. Ex concessis that
grant was wholly effective: therefore
the ratification, etc..
effected no transfer of property nor anything else.
The same
point arises, but with a refinement upon it, in regard to
the
investments representing capital moneys of the settlement.
These were
transferred to the Company by the Trustees by the usual
deeds of transfer.
The Trustees no doubt acted in a fiduciary
capacity, but they acted (a) upon
the direction of Lord St.
Levan as tenant for life and (b) upon the exercise
by Lord
St. Levan and Mr. Ponsonby of their joint power of appointment
"
by way of ratification ". Then, the argument runs, under section
58 (4)
the transfer by the Trustees becomes the transfer of those
who directed it:
and those who directed were not only Lord St.
Levan as tenant for life
but he and Mr. Ponsonby in exercise of a
non-fiduciary power. If Lord
St. Levan was competent to direct the
transfer under the Settled Land Act
or under the extended powers
given to him by the Deed of the 23rd March,
1927, then the
argument fails for the reasons given in regard to the settled
land:
for the direction by Lord St. Levan and Mr. Ponsonby added nothing
to
that already given by Lord St. Levan. But at this point the
argument
opened a question of a far-reaching character, which I am
sorry to have
to decide without the assistance of Judges who have
a greater familiarity
with such problems. It is the broad question
whether it is competent for a
tenant for life to direct the
trustees to change an investment of capital
moneys into another
investment authorised by the Act or by the settlement.
Upon this
question Counsel on either side agreed in saying that there
was no
direct authority and they agreed too that the reason for that
was
that the answer was clear. But unfortunately here harmony
ended, for
the clear answer given on the one side was the exact
opposite of the
clear answer given on the other. It falls
therefore to your Lordships to
determine a question which I should
have expected to find well settled
long ago.
Part
III of the Settled Land Act, 1925, which is entitled "
Investment or
" other application of capital money ",
provides by section 73 (1) that capital
11
money
arising under the Act shall subject as therein mentioned be
invested
or otherwise applied wholly in one or partly in one and
partly in another
or others of the following modes: then follow
twenty-one so-called modes,
of which the first is "investment
in Government securities, or in other
" securities in which
the trustees of the settlement are by the settlement
" or by
law authorised to invest trust money of the settlement, with power
"
to vary the investment into or for any other such securities"
and the
others are the numerous forms of application which
experience had shown
to be necessary or expedient. So far there is
nothing to indicate with
whom the direction or initiative lies.
This is to be found in section 75,
which provides by subsection
(1) that "capital money arising under this
" Act shall,
in order to its being invested or applied as aforesaid, be paid
"
either to the trustees of the settlement or into court at the option
of the
" tenant for life, and shall be invested or applied by
the trustees, or under
" the direction of the court, as the
case may be, accordingly ". At this
stage the tenant for
life, having exercised his option for payment to the
Trustees or
into Court, appears to leave the scene. But subsection (2)
provides
that " the investment or other application by the trustees
shall
" be made according to the direction of the tenant for
life, and in default
" thereof according to the discretion of
the trustees . . . and any investment
" shall be in the names
or under the control of the trustees ", subsection (3)
provides
that "the investment or other application under the direction
of
" the Court shall be made on the application of the tenant
for life or of
" the trustees " and subsection (4) that
" any investment or other application
" shall not during
the subsistence of the beneficial interest of the tenant
"
for life be altered without his consent". I do not think that
any assistance
is to be got from subsection (5) or subsection (6),
but subsection (7)
provides that " those securities "
[i.e. the securities representing capital money]
" may be
converted into money, which shall be capital money arising under
"
this Act ". By definition " capital money arising under
this Act ", unless
the context otherwise requires, means "
capital money arising under the
' powers and provisions of this
Act or the Acts replaced by this Act,
' and receivable for the
trusts and purposes of the settlement and includes
"
securities representing capital money ".
Upon these
sections the contention of the Crown is that the tenant for
life,
having under section 75 (2) directed the application of capital
money
in the mode first mentioned, viz., in investment in
authorised securities,
has no power to direct a change of
investment into other authorised
securities, that the power to
vary rests with the Trustees and that, though
under subsection (4)
of section 75 they cannot exercise that power without
the consent
of the tenant for life, he has no power of direction. On
the other
hand it is argued that, just as the tenant for life has the
initial
power of direction and the further power (which is not
denied) of directing
that investments shall be realised and the
proceeds applied in some authorised
mode of application, e.g., in
discharge of incumbrances, so he has power
to direct that an
investment shall be realised and the proceeds shall be
invested in
other investments, or, in other words that the words "
with
"power to vary" which occur in section 73 (1) (i)
do not confer a power
on the Trustees apart from the tenant for
life but merely indicate that the
right of the tenant for life to
direct is not exhausted when he has directed
that the mode of
application of capital money shall be the investment
in
securities.
My Lords,
between these two views, both of which are, I think, possible,
I
choose the latter without hesitation. It would be at once illogical
and
inconsistent with the scheme of the Settled Land Act to give
to the
tenant for life the right to say whether capital money
should be applied
in investment in securities or (say) in the
discharge of incumbrances (section
73 (1) (ii)), or in the
purchase of land in fee simple (section 73 (1) (xi))
and the right
too to direct the sale of securities and the application of
the
proceeds in some other mode, but to deny him the right to
direct a variation
of investment. It is not, I think, inconsistent
with this view that section
75 (4) contemplates the consent of the
tenant for life, which presupposes
action initiated by the
Trustees: for under section 75 (2) the Trustees may
in default of
direction by the tenant for life act at their own discretion
and
section 75 (4) is apt to cover such a case. Nor can I disregard
12
section 75
(7). If securities can be converted into money (which I take to
be
something that can and must be done at the discretion of the
tenant for
life) the proceeds become capital money of which the
tenant for life can
direct the application and, if he directs the
investment in securities, he
can choose the securities so long as
they are authorised. I am therefore
of opinion that a tenant for
life can direct an exchange of investments,
assuming always that
he acts within and according to his statutory or
extended powers,
and, coming from the general to the particular, I am
of opinion
that Lord St. Levan was competent to give the direction, to
which
I have referred, in regard to the investments forming part of
the
settled property. Accordingly the ratification and appointment
by himself
and Mr. Ponsonby added nothing to his direction. It was
that which was
effective and it was given by him in a fiduciary
capacity.
The same
point was raised also in regard to a third class of property
which
was transferred to the Company, viz.: the property which has
been
called " the equitable interests ". What I have
already said covers this
class of property also and I do not think
it necessary further to explain
why this property too was
transferred to the Company by Lord St. Levan
in a fiduciary
capacity.
So far, my
Lords, I have endeavoured to interpret and apply section 46
of the
Act to the facts of this case with only an oblique glance at section
58.
But now I must turn to the contentions of the Crown which are
based
on that section and first to a contention based on
subsection (5). That
subsection provides that " references in
this Part of this Act to a person
" having any power or
control or doing any act in a fiduciary capacity
" shall be
construed as references to his having that power or control or
"
doing that act in a fiduciary capacity imposed on him otherwise
than
" by a disposition made by him and in such a capacity
only "
It was
urged on behalf of the Crown that, inasmuch as the additional
powers
by the exercise of which Lord St. Levan, as tenant for life,
was
enabled to transfer or direct the transfer of property to the
Company, owed
their existence to a disposition made by him, viz.,
the Deed Poll of 23rd
March, therefore the fiduciary capacity in
which he exercised those powers
was imposed on him by that
disposition. I do not think that this argument
is valid.
Admittedly he was a trustee of the powers and therefore could
only
exercise them in a fiduciary capacity, but this flowed from the
pro-
visions of section 107 of the Settled Land Act, 1925. It was
Lord St. Levan
who created the power but the capacity in which he
exercised it was
imposed by the Act. Take any settlement that you
will and suppose
that the tenant for life exercises a power
conferred on him by the settlement
in extension of his powers
under the Settled Land Act. Whether the
settlement is made by
himself or another, it could not be said that the
fiduciary
capacity, in which he exercised the power, was " imposed "
by the
settlement. The word " impose " is, I think, apt
to describe a consequence
which flows from a statutory provision
but inapt to describe a power
voluntarily created.
The next
contention that I must notice is founded upon section 58 (2)
which
must be read in conjunction with section 58 (4). Subsection
(2)
provides that " a person shall be deemed for the purposes
of this Part
" of this Act to have made a transfer of
property to a company if the
" property came to be included
in the resources of the company by the effect
" of a
disposition made by him or with his consent or of any associated
"
operations of which such a disposition formed one ".
The
argument here is that it was by the effect of a disposition made
by
Lord St. Levan in a non-fiduciary capacity, viz., the Deed Poll of
the
23rd March, or at least by the effect of associated
operations, of which that
disposition formed one, that the
property came to be included in the
resources of the Company and
that therefore Lord St. Levan must be
deemed to have transferred
the property to the Company within section 46
and to have done so
in a non-fiduciary capacity.
Here it is
regrettably necessary to make further distinctions, for there
were,
as I have already pointed out, different species of property, and
they
demand separate consideration. First, it was urged that the
cash paid by Lord
13
St. Levan
for the Preference shares was caught by the subsection. I
have
already expressed the view, which is, I understand, held by
the majority
of your Lordships, that section 46 does not cover a
cash subscription for
shares. If this is so, it is I think
impossible to say that the cash is
" property included in the
resources of the company" which anyone is
deemed to have
transferred. The transaction is outside the purview of
the section
and the subsection.
Next, the
argument turned to the land. This was a kind of property
which was
in fact and in law transferred by Lord St. Levan himself to
the
Company. The sale and the conveyance were made by him as tenant
for
life and were therefore made by him in a fiduciary capacity. I see
no
room for what I may call a deeming provision when that which is
to be
deemed has effectively taken place without it. Lord St.
Levan transferred
the property in a fiduciary capacity: the
subsection does not in my opinion
entitle me to deem him to have
transferred it in a non-fiduciary capacity.
Next, and
more difficult, come two other kinds of property which I can
take
together, the investments representing capital moneys and the
equitable
interests, and I must now turn to section 58 (4). This
subsection so far
as relevant provides as follows: "
References in this Part of this Act to a
" disposition's
being made by any person ... or to any other act's being
"
done by any person, include references to its being made ... or
being
" done by him and another jointly or by another at his
direction . . . ".
I have already expressed the opinion and
will assume that it was competent
for Lord St. Levan as tenant for
life to direct the Trustees of the settlement
to invest capital
moneys in the purchase of or in exchange for shares of the
Company,
and that the effect of the deed of the 25th March was that he
validly
exercised that power of direction with the result already pointed
out
that the confirmatory direction by him and Mr. Ponsonby in
exercise
of the overriding power added nothing to it. If so, the
act of the Trustees
in transferring the investments was an act
done by another at his direction
and accordingly it was under this
subsection his act: it was he who trans-
ferred the property, and
ex concessis he transferred it in a fiduciary capacity,
for
he was acting in exercise of additional Settled Land Act powers.
But
here comes the crux. If subsection (2) stood alone, and
subsection (4)
had not been enacted, I could not avoid the
conclusion that Lord St. Levan
must be " deemed " to
have transferred the investments. The deeming
provision would not
(as it was in the case of the land) be excluded by
an actual
transfer, and, even though the direction to transfer was given
in
a fiduciary capacity, that could not alter the fact that the
property
became included in the resources of the Company not as in
the case of
the land by an actual transfer by Lord St. Levan, but
by a series of operations
of which the exercise of the
non-fiduciary overriding power was one. But
subsection (2) does
not stand alone and the question is what part subsection
(4) is to
play. The latter like the former is in effect a deeming provision.
Am
I then to say that as the result of subsection (4) Lord St. Levan
was
for the purposes of section 46 the actual transferor of the
investments,
just as he was of the land, so as to exclude the
operation of the deeming
provision of subsection (2)? Or am I to
say that subsection (4) is to be
denied any operation where
subsection (2) would without it be brought
into play? It may be
urged that as subsection (2) expressly does, but
subsection (4)
does not refer to transfers, the former section should apply.
But
this is a very tenuous thread on which to hang a taxpayer, for
subsection
(4) does not the less apply to transfers because it
uses general words such
as " disposition " and "
act " which cover both transfers and other operations.
I have
come after much hesitation to the conclusion that the provision
of
subsection (4) must prevail. It is, I think, a subsection which
is intended
and is apt to cover every case : its language is
absolutely general: it does not
open as it might by a saving
reference to subsection (2) and it should
not be restricted unless
it is necessary to do so in order to give some meaning
to that
subsection. But this clearly is not necessary: for subsection (2)
has
in any case ample scope where no question arises as to the
capacity,
fiduciary or non-fiduciary, in which a transfer
is made but the question is
whether that which was done, by
whomsoever done, amounted to transfer.
14
My Lords,
having come to the conclusion that Lord St. Levan did not
transfer
any property to the Company within the meaning of section 46
except
in a fiduciary capacity, I am of opinion that upon this ground
the
alternative claim for duty which is made against the Company
fails and the
cross-appeal of the Crown must be dismissed. But in
case your Lordships
take a different view on this very difficult
question, it is right that I should
state my opinion on the
further question whether any and what benefit within
the meaning
of the section accrued to Lord St. Levan from the Company in
the
three years ending with his death.
That some
benefit so accrued to him is admitted by the Company, for he
received
the proper instalments of the sum of £750,000 which were
payable
within those years and he also received dividends upon the
Preference
shares. But a dispute has arisen in regard to certain
sums received by
Lord St. Levan from the Company in the
circumstances which I must
now state.
By a
Mortgage Deed dated 30th January, 1933, and made between Lord
St.
Levan of the one part and the Company of the other part the
Company
covenanted to advance to Lord St. Levan on every 25th
March, 24th June,
29th September and 25th December, during the
joint lives of Lord St. Levan
and his nephew Francis Cecil St.
Aubyn (now the third Baron St. Levan)
at four per cent, interest a
sum of £500 unless and until Lord St. Levan
should give
notice to the Company that he did not require such advance
to be
made and it was thereby agreed that payment of the said sums
and
of the interest thereon should not be required by the Company
until
the expiration of a period of two years from the death of
Lord St. Levan
unless he or his personal representatives should
desire to repay the same
previously and in the meantime interest
becoming due thereon should be
added to the principal money and
carry interest accordingly and the said
Deed contained a provision
for deduction of the said debt by instalments
from any instalment
of the said sum of £750.000 remaining outstanding at
the
expiration of the period of two years and for charging the same
upon
such instalments.
By another
like Deed dated 4th August, 1936, the Company covenanted
to
advance to Lord St. Levan on every 1st January and 1st July during
the
same joint lives a further sum of £500 upon the same
terms as the advances
to be made under the said Deed of 30th
January, 1933.
Pursuant
to the said Deeds the Company advanced to Lord St. Levan
in each
of the three years preceding his death sums amounting in all
to
£3.000 all of which with the interest thereon remained
due and owing at
his death.
The
question is whether the advances so made were " benefits "
within
the meaning of section 46. The argument for the Crown is a
simple one.
Under section 47 (which I have already cited) any
periodical payment out
of the resources of the Company is to be "
treated as a benefit ": the loans
or advances were payments
made to Lord St. Levan out of the resources
of the Company and
they were made periodically: and they were received
by Lord St.
Levan for his own benefit directly or indirectly. Therefore they
were
" benefits". The Company on the other hand appeals once
more
to the plain use of ordinary words and denies that a man can
fairly be
said to receive for his own benefit a sum which he
receives by way of loan
and has to repay, and further relies on
the omission of loan from a definition
which refers to payment by
way of dividend or interest or by way of
remuneration or any other
payment. The latter argument may derive some
force from the
contention of the Crown that a transaction of loan was
just what
the section was aimed at. But perhaps that contention had only
become
common form by the time this stage of the case had been reached.
My
Lords, here again is a question upon which I find it impossible
to
express a confident opinion. It is indeed strange that no
reference is
made to a transaction of loan and the result of
holding such a transaction
to be a benefit must, as learned
Counsel for the Crown was constrained to
admit, have strange
results. But I have come to the conclusion, nevertheless,
that the
contention of the Crown must be upheld. I cannot escape from
the
fact that as each periodical loan was made to Lord St. Levan there
15
was a
payment to and receipt by him. And I cannot think that he
received
it any the less for his own benefit because he had, or his
estate
had, at a later date to repay it. He had the beneficial use
of what he
received and can fairly be said to have received it for
his own benefit.
I may add that I do not find it possible to find
in the definition of periodical
payment any genus of payments
created from which, by the application of
the ejusdem generis
rule, a loan could be excluded nor can I get any assistance
from
the provisions of the Seventh Schedule to the Act to which
reference
was made,
I am
therefore of opinion that the loans were " benefits "
within section 46.
But this is only relevant if Lord St. Levan
transferred property to the
Company within the same section except
in a fiduciary capacity, and this,
in my opinion, he did not.
It follows
from what I have said that in my opinion the appeal should be
allowed
with costs and the cross appeal dismissed with costs and the
judgment
of Mr. Justice Groom-Johnson restored.
Lord
Normand
MY LORDS,
I have had
the advantage of reading the opinions of my noble and learned
friends
Lord Simonds and Lord Radcliffe, and I am in agreement with them
at
all points where they are at one. It will, therefore, be possible for
me to
deal with the case without trespassing for long on your
Lordships' patience.
On the
Crown's claim under sections 43 and 56 of the Finance Act. 1940,
I
can state my view quite briefly. After the death of Lord Amherst
on
7th March, 1927, there was vested in Lord St. Levan and Mr.
Ponsonby a
joint power of appointment over all the property
comprised in the settle-
ment, which they were free to exercise
for the personal benefit of Lord St.
Levan. Mr. Ponsonby was not a
trustee in relation to that power, and
Lord St. Levan was the
effective dominus of the settled property. He also
had the
powers of a tenant for life under the Settled Land Act, 1925.
His
powers, derived from one or the other of these sources,
enabled him to
bring about an enlargement of the powers of
investment and a realization
and reinvestment of the settled
property, to appropriate to himself in fee
the whole or any part
of the property or of substituted investments of the
proceeds, and
to make a gift or settlement of such part as he did not
appropriate
in favour of persons selected by him. By his exercise of
these
powers, the original settled property, the lands, equitable
interests and invest-
ments, were sold to the Company, part of the
price was invested in the
Ordinary shares of the Company and the
balance was appropriated by Lord
St. Levan, who also resettled the
Ordinary shares in trust in such a way as to
extinguish his life
interest and to exclude himself from all further interest in
them.
In substance and in form, therefore, he took part of the trust
property
as his own absolutely, and made a gift of what remained
under trust to donees
selected by himself. Admittedly the trustees
for the donees immediately
assumed bona fide possession and
enjoyment of the Ordinary shares of the
Company. These shares were
an item of property separate from the part
of the purchase price
which had not been invested in them, and which was
represented by
the preference shares of the Company and a jus crediti in
a
balance payable by the Company, both owned by Lord St. Levan. If
Lord
St. Levan had been the holder of debentures and preference
and ordinary
shares in the Company and had transferred the
ordinary shares, whether by
gift or for value, the transferee
thenceforth would have retained possession and
enjoyment of the
ordinary shares to the entire exclusion of Lord St. Levan and
of
any benefit to him by contract or otherwise. The present case is in
no way
different from that and the effect of the transactions is
that the possession
and enjoyment of the ordinary shares by the
trustees were retained by them to
the entire exclusion of Lord St.
Levan and of every benefit to him by contract
or otherwise.
16
The
application of the statutory hypothesis as provided for by section
56
can in this respect make no difference. The fictional mutation
of the Com-
pany into a trust and of the Company's creditors and
shareholders into
beneficiaries, however far it is carried, still
leaves the beneficial rights repre-
senting the ordinary shares
and the beneficial rights representing the prefer-
ence shares and
the instalments separate items of property ; and the
beneficial
rights representing the ordinary shares are, when the
statutory hypothesis is
applied, still enjoyed by the donees
thereof to the entire exclusion of Lord
St. Levan and of any
benefit to him.
On the
case law of this branch of the appeal I need say nothing, since it
has
been fully dealt with by my noble and learned friends.
The
Crown's cross appeal and claim under section 46 and the
sections
which have to be read with it, as set out in the opinion
of my noble and
learned friend Lord Simonds, raise questions of
some difficulty. The first
point is whether Lord St. Levan, when
he paid £100,000 for the preference
shares in the Company,
made a transfer of property within the meaning of
section 46. My
opinion is that " transfer of property " are not the
usual
words which would be naturally selected to describe a
payment of money,
though it cannot be denied that money is
property or that payment is a
transfer. I think that if it had
been intended to strike at money payments
the simple words
necessary to make that intention clear would have been
added.
The next
question is whether Lord St. Levan made a transfer to the Com-
pany
of the lands, equitable interests and investments which formed
the
original settled property otherwise than in a fiduciary
capacity (section 46 (D).
The precise wording of the subsection is
of importance. If the question had
been whether Lord St. Levan
transferred the lands, to take the clearest case,
otherwise than
in a fiduciary capacity, the answer might well have been that
he
did not. For it was he who transferred the lands by the conveyance
of
26th March, 1927, and he did so in pursuance of the fiduciary
power imposed
on a tenant for life by the Settled Land Act, 1925.
It could then have
been argued with some plausibility that the
inquiry was complete, and that
there was neither necessity nor
justification for pursuing it further by recourse
to a provision
under which a person may be deemed to have made a transfer
of
property.
But when
the inquiry is whether Lord St. Levan made a transfer of the
lands,
the answer may be different. I find it impossible to read section
46
and the related sections without being forced to recognise that
the same
party may make more than one transfer within their
meaning, and that
the making of one such transfer otherwise than
in a fiduciary character satisfies
pro tanto the conditions
for charging the company's assets under section 46.
It is no
answer that the same party made another transfer in a
fiduciary
capacity.
Now by the
appointment of 23rd March, 1927. Lord St. Levan made a
disposition,
as defined in section 59, by the effect of which the lands,
equitable
interests and investments, came to be included in the
resources of the
company and therefore he must be deemed to have
made a transfer of the
property to the company (section 58 (2)).
Admittedly this transfer was not
made in a fiduciary capacity. A
further disposition was necessary to complete
the transfer of the
property to the company. But I think that the whole
trust property
came to be included in the company's resources by the effect
of
the appointment of the 23rd March, for without it the sale of the
trust
property to the company would not have been carried out.
Lastly, I
see no way of escaping the conclusion that the advances made
under
the Deeds of 30th January, 1933, and 4th August, 1946, were
periodical
payments and therefore benefits within the meaning of
section 47, despite
the arbitrary results and crude anomalies to
which such a conclusion may
lead.
For these
reasons I would concur in my noble and learned friend
Lord
Radcliffe's proposals for disposing of the appeal and cross
appeal.
17
Lord
Simonds
MY LORDS,
My noble
and learned friend Lord Oaksey, who is unable to be here
today,
has asked me to say that he concurs at all points in the
Opinion
which I have just delivered.
Lord
Radcliffe
MY LORDS,
The
original appeal relates to the Crown's claim to Estate Duty
under
section 43 of the Finance Act, 1940, that claim being assisted
or
encumbered by the provisions of section 56 of the same Act. It
is no doubt
convenient to dispose of the questions which are
involved in that appeal
before going on to deal with the cross
appeal of the Crown.
No
one could suppose that section 43 is anything but an obscure
section.
So was section 11 of the Finance Act, 1900, the statutory
parent of the
present enactment. So were section 35 and section 39
of the Finance Act,
1930, which extended the scope, without
elucidating the meaning, of the
charge imposed by the 1900 Act.
All these sections have now disappeared
and their place is taken
by section 43 and the accompanying provisions of
the Finance Act,
1940. But there still appears as a condition upon which
freedom
from duty depends that difficult phrase about bona fide posses-
sion
and enjoyment of the property being assumed and "
thenceforward
" retained to the entire exclusion of the
person who had the interest
" and of any benefit to him by
contract or otherwise." There was very
general uncertainty as
to what, if not all, benefits were intended to be
covered by these
words, and as to the circumstances in which, if there
were indeed
any circumstances, a person might legitimately be found in
the
enjoyment of some contractual benefit after the termination of
the
limited interest without involving the property in continuing
liability for duty.
I think it regrettable that when, in 1940,
opportunity was found to wipe out
the old sections and to enact a
new set of provisions, opportunity was not
at the same time found
to make those provisions more readily intelligible.
I can
appreciate that at any rate some of the transactions with which
section
43 and section 56 appear to be concerned are deplorable
from the point
of view of those interested in revenue collection,
but for all that, the taxpayer
is entitled to be told with some
reasonable certainty in what circumstances
and under what
conditions liability to tax is incurred or else to be told
explicitly
that the circumstances and conditions of liability are just
those
which the Commissioners, of Inland Revenue in their
administrative discretion
may consider appropriate. The seventeen
sections which constitute Part IV
of the Finance Act, 1940, are
expressed with what proves on investigation
to be a vagueness so
diffuse and so ambiguous that they may well produce
in practice
the second alternative while adopting in form the requirements
of
the first. This would be an unfortunate situation to have brought
about.
The prayer of Ajax—'.png)
—has
been heard before in your
Lordships'
House, but I think its appeal is even stronger when obscurity
is
created by deliberate legislation than when it arises from the less
wilful
confusions of the common law.
My Lords,
I have formed the opinion that the fate of this appeal must turn
upon
the meaning that you attribute to the phrase which appears in
sub-
section 2 (a) of section 43: —" if bona
fide possession and enjoyment of
" the property in which the
interest subsisted was assumed immediately there-
" after by
the person becoming entitled by virtue of or upon the disposition
"
or determination and thenceforward retained to the entire exclusion
of
" the person who had the interest and of any benefit to
him by contract or
" otherwise." For the facts of this
case, complicated as they may seem, come
down to a simple legal
issue. Those facts have been fully stated in the
opinion of my
noble and learned friend, Lord Simonds, and it is quite
unnecessary
for me to travel through them again. What it comes down to
18
is this.
The Crown's claim is for Estate Duty on the Ordinary shares of
St.
Aubyn Estates Ltd. Those shares constitute the property in which
the
deceased had a life interest at the date when he and Mr.
Ponsonby executed
the Deed Poll of 29th March, 1927 ; and it is
because that Deed had the
effect of determining his life interest
in that property that the Crown prefers
its claim under section
43. So far there is nothing in controversy. The
Appellants,
however, maintain that upon the 29th March the deceased
was
immediately and thereafter continued to be excluded from any
possession
or enjoyment of those Ordinary shares, since the whole
beneficial interest
in them belonged to others than himself, and
that the possession and enjoy-
ment so taken by or on behalf of
those others was such as to exclude him
from any benefit by
contract or otherwise. This is where the whole con-
troversy
comes. For the Crown, while not disputing that after the Deed
of
29th March the whole beneficial interest in the Ordinary shares
belonged
to others than the deceased, contends that the existence
of those interests
of which he had become the absolute owner by
virtue of the Deed of 28th
March, 1927. made it impossible to say
that the possession and enjoyment
of the Ordinary shares which had
been assumed by or on behalf of those
others was retained to the
entire exclusion of any benefit to the deceased by
contract or
otherwise.
At first
sight it is difficult to see any basis for this contention. No
right
or interest that was left to Lord St. Levan after the 29th
March interfered
with the new owners' full possession and
enjoyment of that " bundle of
" rights " which
constituted the Ordinary shares and which formed the pro-
perly in
which he had given up his life interest. It is true that, putting
aside
his ownership of the Preference shares, he continued to
enjoy the benefit
of the Company's contract to pay such part of
the purchase price as was
to be discharged by half-yearly
instalments of £18,750 each. Certainly this
was a benefit by
contract: certainly the right to receive this money in this
way
had been created as one step in the series of transactions which
began
with the Deed of 23rd March and ended with the Deed of 29th
March,
1927. Moreover, I do not think it necessary to treat it as
less than certain
that Lord St. Levan and Mr. Ponsonby, the joint
authors of all that was
brought about at that time, intended from
the first that the benefit of this
contract, when created, should
become the absolute property of Lord St.
Levan and that the
Ordinary shares should be resigned to follow the trusts
declared
by their Deed of the 29th March to the exclusion of any
further
interest of Lord St. Levan in those shares. But unless it
is a valid pro-
position of law that for the purposes of section
43 bona fide possession and
enjoyment of property is not assumed
and retained to the entire exclusion of
any benefit to a person by
contract or otherwise merely because it is found
that after
releasing a limited interest in the property that person continues
to
enjoy a contractual benefit created as part of the whole scheme in
which
that release is involved, I do not see that the recital of
the facts that I have
set out above brings the Crown any nearer to
establishing its case under
section 43. I am afraid that there is
a good deal that is yet to be said on
this appeal: but in
substance the case for the Crown stands or falls by that
proposition.
If it is right, the wording of the section is indeed inapt to
express
its meaning: for to adopt it requires no more than to
ascertain
whether the deceased was left in possession of any
contractual benefit at all at
the end of the transaction and gives
no significance to the question whether
that benefit, whatever it
is, is such as to trench upon the possession and enjoy-
ment of
the property in which the interest has been surrendered. My own
view
is that the whole proposition is fallacious. Nor do I think it the
better
founded if the qualification is introduced that a benefit
by contract, to be within
the mischief of the section, must be "
referable to " the transaction by which
the life interest is
determined. Your Lordships were invited to accept that
qualification
because the words in question had been used by Lord Tomlin
when
delivering the Opinion of the Judicial Committee in Munro v.
Com-
missioner of Stamp Duties [19341 A.C.61. But there is
a difference between
using words to explain a point and using
words to define a proposition:
and the words " referable to "
are in themselves of too ambiguous an import
to afford any
satisfactory gloss upon the meaning of the section.
19
There is
this much, and not more than this much, to be said for the
proposi-
tion advanced by the Crown. It was decided long ago in
A.G. v. Worrall,
[1895] 1 QB 99, that a
contractual benefit may interfere with the exclusive
possession
and enjoyment required by such a provision (in that case, section
11
(1) of the Customs and Inland Revenue Act, 1889) even though it does
not
amount to a reservation out of the property that is the
subject of the gift.
My Lords, so it may. For my part I see
nothing in the decision of Worrall's
case that cannot
readily be accepted as good law. But what did it decide?
A father
had made a present to his son of a sum of about £24,000
secured
on mortgage and the son had bought in the equity of
redemption for a
small sum: in return for his father's gift the
son had covenanted to pay him
an annuity of £735 per annum
during his life. In effect the son was returning
to the father the
income on the property given during the remainder of the
father's
life. It seems to me reasonable enough for a Court to hold in
those
circumstances that the son had not obtained the enjoyment of
what was given
free from a contractual benefit to the father which
encumbered the enjoy-
ment of the very thing that was given. To
hold otherwise would have been
to stop at the mere form of the
transaction. Even if I did not think that
Worrall's case
was rightly decided, as I do, I should not think it right at
this
date to suggest that it ought to be overruled. It has stood
too long, and has
been too often relied upon. But I think it a
very mistaken form of reason-
ing to deduce from a decision that a
benefit, to be within the mischief of the
section, need not
necessarily be by way of reservation out of the subject
matter of
a gift the general proposition that all benefits are within the
mis-
chief of the section, whether they are by way of reservation
out of the subject
matter of the gift or not. To deny the validity
of one general proposition
is not to assert the general validity
of its opposite. I suggest, therefore,
that your Lordships can
safely put aside the case of A.G. v. Worrall as
having
no further bearing on this appeal than that of showing that
the benefit of the
instalment payments which Lord St. Levan
retained was not without the
mischief of the section merely
because the Company's contract to pay them
was neither a charge
upon nor a reservation out of the property which con-
sisted of
the Ordinary shares. But it leaves unresolved the essential
question
whether that benefit was nevertheless within the mischief
of the section.
I do not
believe that there is any great difficulty in answering that
question.
I think that in this, as in other cases arising on
similar legislative provisions,
there are two matters that have to
be attended to before the answer can
be given. The first is, How
did the deceased come to be in enjoyment of
that benefit by
contract, the existence of which is said to compromise the
possession
and enjoyment of the property released? The second is, What
precisely
is the property the life or other interest in which has been
deter-
mined? On the first point the answer is plain. The deceased
enjoyed that
contractual benefit because he decided to create it
and to take it for himself.
This is not a case in which he had to
bargain to get what he wanted: nor
is it a case in which by some
ambiguous arrangement he took back in
substance a part of that of
which he had affected to dispose. The whole
of this scheme was
brought about by an exercise of the powers of the
deceased alone
or of the deceased in conjunction with Mr. Ponsonby.
Between them
they brought the Company into being; created the instalment
debt,
the Preference and the Ordinary shares ; secured that the
instalment
debt, the cash and the Ordinary shares should become
the property held
on the trusts of the Resettlement instead of the
land, investments and other
interests transferred to the Company ;
and then withdrew the cash and
the instalment debt to become the
deceased's absolute property and put an
end to any further
interest of his in the Ordinary shares. Nor can there
be any doubt
about the answer to the second point. It was the Ordinary
shares
in which the life interest was determined; not the Ordinary shares
as
they might have been had some scheme been operated other than
that
which was in fact adopted, but the Ordinary shares as in fact
they were,
shares in a Company which had acquired assets on the
terms of paying for
them in part by the satisfaction of this
instalment debt.
Now, if
that was the situation, the possession and enjoyment of the
rights
which constituted the Ordinary shares were only affected by
the
existence of the instalment debt in the sense that the
half-yearly payment
20
of the
instalments reduced the resources which, had there been no
debt,
would have been available for the benefit of the
shareholders of the Company.
But I think that there is formidable
authority against the view that in such
a situation the possession
and enjoyment of the relevant property is not
exclusive of a
benefit to the donor or releasor of such property. A man
may have
an arrangement which gives him contractual benefits that affect
an
estate and may subsequently make a gift of his interest in that
estate: if
he does the donee has possession and enjoyment of what
is given, to the
entire exclusion of the donor or of. any benefit
to him. That is the Munro
case [1934] AC 61. Shares may
be made the subject of a trust for another
person, the maker of
the trust having the right under it to be one of the
trustees, to
retain in his control the voting-power in respect of the shares
and
to take an ultimate resulting interest: yet that benefit does not
bring
the property within the mischief of a similar provision.
That is the Perpetual
Trustee Co. case [1943] AC 425. No
more is possession and enjoyment
of a gift compromised if a man
vests property in trustees upon trust to
provide out of it certain
limited benefits for a donee, but subject thereto upon
trust for
himself. That is the Cochrane case [1905] 2 I.R. 626; 1906, 2
I.R.
200. All these decisions proceed upon a common principle,
namely, that
it is the possession and enjoyment of the actual
property given that has to
be taken account of, and that if that
property is, as it may be, a limited
equitable interest or an
equitable interest distinct from another such interest
which is
not given or an interest in property subject to an interest that
is
retained, it is of no consequence for this purpose that the
retained interest
remains in the beneficial enjoyment of the
person who provides the gift.
My Lords,
I think that the application of that principle is sufficient
to
destroy the Crown's claim under section 43. In substance the
position of
Lord St. Levan was the position of a man who creates a
rent charge in
his own favour upon property which is in his
absolute disposition and
then makes a gift of that property
subject to that charge. Nothing is then
given except the interest
so charged. Is possession and enjoyment of what
is given exclusive
of the donor or of any benefit to him, despite his continued
receipt
of the amounts secured by his charge? I conclude that it is, for
I
cannot imagine that, had the law been otherwise, the case of Grey
v. A.G.
[1898] 2 QB 534; [1900] AC 124, would have
taken the course that it did.
In that case Earl Grey had at least
created a rent charge for himself on
parting with his estates: but
I think that the judgments in the Court of Appeal
make it plain
that it was not because he had done that, but because he
had done
and secured for himself so much more than that, that liability
for
duty attached. The explanation of that decision which was
offered by the
Irish Court of Appeal in the Cochrane case
makes it turn upon the existence
of the covenants which the
transferor had secured for himself by the trans-
action and which
left him still the effective master of all that he had trans-
ferred,
and the reasoning of Lord Russell in the Perpetual Trustee case
seems
to me to be directed to making the same point. I agree with
those views,
and I cannot more aptly conclude my opinion on this
part of the appeal than
by quoting what Lord Russell there says on
this point (see [1943] A.C. at 446):
" the entire exclusion
of the donor from possession and enjoyment which is
"
contemplated ... is entire exclusion from possession and enjoyment
"
of the beneficial interest in property which has been given by the
gift.
" and . . possession and enjoyment by the donor of some
beneficial interest
" therein which he has not included in
the gift is not inconsistent with the
" entire exclusion from
possession and enjoyment which the subsection
" requires."
Hitherto I
have made no reference to section 56. I have not done so
because,
in face of the considerations which I regard as the
determining
considerations in this matter and which I have tried
to set before your
Lordships, I do not see what difference it
makes whether section 56 (2) is
applied or not. But, since it was
the existence of this section that caused
the Court of Appeal to
decide the appeal in favour of the Crown, a decision
to which, I
gather, they would not have come had section 43 been unfortified
by
section 56, I must state briefly why it is that I do not regard
that
section as having any importance in this case. It introduces
what has
been called " the statutory hypothesis"; but it
introduces that hypothesis
21
for a
limited purpose only. The property on which Estate Duty is
claimed
remains the same: the Ordinary shares. The property in
which the life
interest has been determined remains the same: the
Ordinary shares. It is
only when the further question arises under
section 43 (2) (a) whether
possession and enjoyment of that
property has been assumed and retained
to the exclusion of the
releasor and of any benefit to him that the statutory
hypothesis
comes in to test the exclusion by asking whether, even if it has
been
completely achieved in circumstances as they are, it would have
been
equally true to say that it was achieved if the Company had
been trustee
of its property to give effect to equitable rights
analogous to those in fact
created by the shares and "
debentures " of the Company. If the answer
would have been No
in the imaginary state of things postulated by the
hypothesis,
then the protection of section 43 (2) (a) cannot be invoked
by
the taxpayer.
Of course
this is a clumsy device. It is impossible to say with any
precision
what are the equitable rights which ought to be thought of
as
analogous to the existing rights represented by shares and "
debentures".
It is particularly difficult in the case of
shares, for the section throws
no light on the extent to which one
is supposed to retain or to discard
the managerial powers to which
the rights of Ordinary and other share-
holders are subject but
which they may ultimately control. But I do
not think that it is
necessary for Che present purpose to investigate these
details or
to try to resolve them. It can certainly be accepted that on
the
assumptions required by the hypothesis the Company holds all
its assets
as a trust fund upon trust in the first place to make
thereout the payments
to Lord St. Levan required by the instalment
debt, subject thereto to make
such payments to the Preference
shareholders as may correspond to the
rights that they would have
as Preference shareholders, and subject thereto
upon such trusts
for the Ordinary shareholders as may correspond to their
share
rights, but not so as to prejudice or destroy the prior
equitable
rights. Thus there is one trust fund and different sets
of equitable rights
to be satisfied out of that fund. Thus, too,
the imaginary situation on the
29th March, 1927, was that Lord St.
Levan had the equitable rights in
that trust fund corresponding to
the Preference shares and the instalments
and he had surrendered
to those interested under the Resettlement his life
interest in
the equitable rights in the trust fund corresponding to the
Ordinary
shares.
If it were
enough for the Crown to succeed that it should be possible
to
point out that after 29th March Lord St. Levan continued to enjoy
an
interest in the same trust fund as was bound in equity to satisfy
those
other equitable rights in which he had determined his life
interest, then
section 56 would be very important in this case. I
think that the Court
of Appeal held that it was enough. Here I
part company with them, and
the sentence that I have already
quoted from Lord Russell's opinion in
the Perpetual Trustee
case as a summary of existing authority shows why
I do. In
brief, I do not think that turning the instalments into one kind
of
equitable right in property and the Preference and Ordinary shares
into
other kinds of equitable rights in property, as the statutory
hypothesis does,
makes them any the less distinguishable interests
or properties than they
were in their actual non-hypothetical
form.
I
must now come to the Crown's cross appeal under section 46. It
raises
three principal questions. The first is whether Lord St. Levan "
made
" a transfer " of any property to St. Aubyn Estates
Limited. The second
is, whether, if he did, that was property
which he " transferred in a fiduciary
" capacity ".
The third is whether, if he did make a transfer of some
property
and did not make that transfer in a fiduciary capacity only, any
"
benefits " accrued to him from the Company within the three
years ending
with his death. It is perhaps sufficient to say,
since at this stage we are
dealing with matters of principle only,
that if the first question is answered
in the affirmative, the
second in the negative and the third in the affirmative,
section
46 has imposed a charge of Estate Duty, payable by the Company
and
arising on the death of Lord St. Levan.
22
The first
question requires that your Lordships should consider the manner
in
which three separate classes of property came to be included in
the
resources of the Company: —the freehold lands ; the
investments representing
capital moneys and the equitable
interests and rights in respect of undivided
shares of land, these
interests and rights being considered as one class with
the
investments for the present purpose; and thirdly, the moneys paid
on
the subscription of Lord St. Levan's 100,000 Preference shares.
It is con-
venient to deal first with the investments in relation
both to the first and
to the second questions, since the
consideration of their case raises most
of the difficulties of
interpretation that affect the others and one at least
that is
peculiar to themselves.
If the
word " transfer " is taken in its primary sense, a person
makes a
transfer of property to another person if he does the act
or executes the
instrument which divests him of the property and
at the same time vests
it in that other person. In this sense the
only persons who made a transfer
of the investments to the Company
were Mr. Drummond and Mr. Ponsonby,
the Trustees of the St. Levan
Resettlement. If section 46 stood alone that
would, I think,
conclude the matter. Lord St. Levan would not have
made this
transfer. But section 58 imposes various interpretations of
the
language of the preceding sections, to which interpretations
effect must be
given: and, as I see it, it is in applying those
interpretations and in discerning
the true inter-relation between
them that the first major difficulty is en-
countered. For, in one
way or another, they do certainly constitute Lord
St. Levan a
transferor.
To begin
with, there is section 58 (2). There is more than one reason
why
it should be considered before section 58 (4). It comes the earlier
in
the section. It deals explicitly with the subject of "
transfer ", which sub-
section (4) does not. And, since it
refers to a disposition being made by a
person, it incorporates
within its own provisions all the extended or artificial
meanings
of that phrase which subsection (4) itself lays down. Now
sub-
section (2) is concerned to declare what persons are to be "
deemed " to
have made a transfer of property to a company. It
identities them, rather
unhappily, not so much by what they have
done as by the results of what
they or other persons have done.
The word "deemed" is used a great
deal in modern
legislation. Sometimes it is used to impose for the purposes
of a
statute an artificial construction of a word or phrase that would
not
otherwise prevail. Sometimes it is used to put beyond doubt a
particular
construction that might otherwise be uncertain.
Sometimes it is used to
give a comprehensive description that
includes what is obvious, what is
uncertain and what is, in the
ordinary sense, impossible. I think that it is
in the last of
these three ways that it is used in section 58 (2), for
the
subsection begins its description of the class of persons who
are to be
deemed to have made a transfer with the person the
effect of whose own
disposition has been to add the property
transferred to the resources of the
company, and ends with the
person who has done no more than make a
disposition which is "
associated " with operations that have had a similar
result.
If I apply
to Lord St. Levan this statutory conception of a transferor I
find
this consequence. The investments were transferred to the
Company at
his direction, for he so directed as tenant for life
when he and Mr. Ponsonby
jointly executed the Deed of Appointment
dated 25th March, 1927. It will
save time in this very long
opinion if I say that I accept the Company's
argument that under
the Settled Land Act, 1925, he had power to direct the
Trustees of
the Resettlement to change the investments that represented
capital
moneys, and that this power had to be exercised by him in a
fiduciary
manner. I have had an opportunity of reading in advance
the opinion
of my noble and learned friend Lord Simonds and I am
in full agreement
with what he says on this point. By virtue of
this operation then Lord
St. Levan is deemed to have made a
transfer of those investments to the
Company, for they came to be
included in the resources of the Company
"by the effect of"
a disposition made at his direction, and this by sub-
section (4)
is the same thing as a disposition made by him. But that
is not
the only way in which section 58 (2) requires that he must be
deemed
to have made a transfer, for it was the execution of the Deed
23
of
Appointment dated 23rd March, 1927, made by him and Mr. Ponsonby
that
alone made possible the transfer of the investments to the Company
in
the manner in which and for the consideration for which they were
in
fact transferred. This Deed, which was the first step in the
whole scheme,
was a disposition which formed one of a series of
associated operations of
which the actual transfer of the
investments was another; and on this
ground also, therefore, I
think that the Crown is entitled to treat Lord
St. Levan as a
person who made a transfer to the Company.
There
remain two points that have to be disposed of before an answer
can
be given to the problems which are raised by section 46. One is
this:
if the suppositious transfer by Lord St. Levan which arises
by
virtue of the fact that he directed the transfer of the invest-
ments
is exempted from recognition for the purposes of section 46
by the
further supposition that he made such a transfer in a
fiduciary
capacity, does this prevent Lord St. Levan from being
treated as having
made a transfer by virtue of the appointment
dated 23rd March, 1927?
On no view can that act be said to have
been done in a fiduciary capacity.
My Lords, I can only say that I
can see no reason why, if one way of looking
at the position
involves no liability, that should prevent it being looked at
in
another way that does involve liability. A provision that is
drawn in the
form of section 58 (2) brings it about that quite
different acts may indepen-
dently of each other constitute a
person a transferor on the occasion of a
single transfer. If they
do, the alternative is this: either the subject is
entitled to
select that act the circumstances of which suit his interest best
as
leading to exemption from or reduction of duty and to insist that
the
Crown's claim succeed or fail by consideration of those
circumstances, or
the Crown is entitled to found upon either or
both of the acts and to succeed
if its claim is good by either
test. I think that the latter is the right alterna-
tive, for I
think that it accords with what are in effect the cumulative
provi-
sions of section 58 (2) and that an option of this sort is
not unusual in
taxing statutes. In my opinion therefore Lord St.
Levan did make a transfer
of the investments to the Company for
the purposes of section 46 because he
and Mr. Ponsonby executed
the Appointment dated 23rd March, 1927.
The second
question is, whether, in so far as he was a transferor by
virtue
of having given a direction as tenant for life for the change of
invest-
ment that led to the investments representing capital
moneys being exchanged
for ordinary shares of the Company, he made
that suppositious transfer
" in a fiduciary capacity "
within the meaning of section 46. That he acted
in a fiduciary
capacity I have already accepted: and, though the Act is
wholly
obscure on this point, I think that when a person is a
suppositious
transferor by virtue of a suppositious transfer the
act, whatever it may be,
that makes him subject to the supposition
must itself be treated as a transfer
in order to see whether the
suppositious transfer was made " in a fiduciary
"capacity"
or not. The effect of section 58 (5) is to impose a special
meaning
on the words " fiduciary capacity ": it must be a fiduciary
capacity
imposed on the actor otherwise than by a disposition made
by him and no
other sort of capacity. I have felt some doubt
whether the circumstance
that Lord St. Levan created the power of
investment by making
the Appointment of 23rd March, 1927, did not
result in the fiduciary
capacity in which he gave his direction
being imposed by a disposition made
by him. But your Lordships, I
believe, are unanimous in rejecting this
construction of section
58 (5) and it is with something less than regret that
I waive my
doubts in the matter and accept the view that in giving the
direction
Lord St. Levan made a suppositious transfer in a fiduciary
capacity
only and that, regarded in this way, his transfer is
exempted from recognition
under section 46. But, as I have already
said, I think that he was a supposi-
tious transferor of the
investments in another way and, as such, did not
act in a
fiduciary capacity.
So much
for the investments; and it was conceded that the equitable
interests
in undivided shares of land are for this purpose governed by the
same
considerations as apply to the investments. So I think that those
too
were transferred by Lord St. Levan. Then there is the settled
land. Its
situation is different from that of the investments in
that Lord St. Levan
was himself the conveying party and therefore
made a transfer to the
24
Company in
the ordinary sense. This he was in a position to do because
the
freehold in fee simple had been vested in him by the operation
of the
Settled Land Act, 1925, to hold the same upon trust to give
effect to the equit-
able interests from time to time subsisting
under the settlement. He sold the
land as tenant for life and
transferred as trustee to give effect to the sale
that he had
made: and in this case I do not think that he could possibly
be
said to have imposed the fiduciary capacity in which he transferred
by
any disposition made by himself, for in fact the Resettlement
of 1879 neither
vested in him an estate in fee simple nor gave him
a power of sale. It was
the Act of 1925 that both transferred the
fee simple to him and enacted that
he should hold it as a trustee.
Therefore when he came to transfer it he acted
in a fiduciary
capacity imposed upon him otherwise than by a disposition
made by
himself. But for section 58 (2) that would be enough to exempt
the
transfer of the settled land from the operation of section 46. That
sub-
section however raises the same difficulty as I have
discussed in relation to
the investments. If it were no more than
a provision supplementary to
section 46, in the sense that it was
so drawn as to apply only to cases
which section 46 did not cover
by its own terms, it might be proper to
ignore it in a case where,
as here, section 46 did, in the natural and ordinary
sense of "
transfer ", apply. But, as I have said, I do not think that
section
58 (2) can be regarded in this way. It applies directly to
Lord St. Levan, for
the settled land came to be included in the
resources of the Company by the
effect of his conveyance. It
applies to him also in the extended sense,
for the transfer that
he made was one of a series of associated operations
of which the
Appointment dated 23rd March, 1927, was one: without that
appointment
that transfer could never have been made, as it was, for
a
consideration consisting in part of payment by instalments. Here
again
therefore Lord St. Levan can be treated as a transferor in
two distinct ways,
one, as actual transferor but in a fiduciary
capacity, the other, as suppositious
transferor but acting, as
such, not in a fiduciary capacity. Here again I
think that the
Crown is entitled to choose whichever way of presenting
the matter
under section 58 (2) may better suit its case and, accordingly,
I
think that there was a transfer of the settled land also for the
purposes
of section 46.
Lastly,
there is the £100.000 which Lord St. Levan paid as his
subscription
for the Preference shares. My Lords, I must say quite
briefly that in my
opinion, when he did this, he made a transfer
of £100,000 to the Company
within the meaning of this
statute. Certainly the Company got £100,000
as part of their
resources: first a cheque, then a credit with Messrs. Glyn,
Mills
& Co. Certainly Lord St. Levan by giving the cheque which led
to
the transfer of bank credit reduced his own credit by an
equivalent amount.
I have spoken of Lord St. Levan as having given
a cheque for £100,000,
for I assume that he must have. In
any event he must have given some
authority to the Bankers to
debit his account with £100,000 and to credit
the Company
with a like amount, and that is, I think, sufficient for the
purpose.
Whatever form the authority took, it was a disposition made by
him
and it was an essential part of the transaction by which the
Company's
resources were augmented by this £100,000. I am
bound to say that in
that state of affairs Lord St. Levan seems to
me plainly to have made a
transfer of £100,000 to the
Company for the purposes of section 46 as
interpreted by section
58 (2).
One
question remains upon which I must express my opinion. It only
arises
if your Lordships should consider, as I do, that one or more items
of
property were transferred by Lord St. Levan within the meaning
of section 46.
During the three years preceding his death he
received from the Company
sums amounting in the aggregate to
£3,000 in each year by way of loan.
These loans carried
interest at the rate of 4 per cent, per annum, but the
Company
could not call for repayment of either principal or interest
until
the expiration of two years after Lord St. Levan's death.
Were the sums
so received " benefits" accruing to him
from the Company within the
meaning of section 46?
I would
answer this question by saying that they were benefits
because
section 47 of the Act has declared them so to be. That
section does in
terms declare that among the things to be treated
as benefits accruing to a
25
deceased
transferor from a company are any periodical payments out of
the
resources of the company which the deceased received for his
own
benefit. A man receives for his own benefit moneys paid to him
on an
advance by way of loan, not the less because the transaction
involves an
obligation to repay an equivalent amount at a future
date with interest
in the meantime. A " periodical payment"
is defined by section 47 (2) in
terms which give it the widest
possible scope and show at any rate that
a payment may be a
benefit by way of periodical payment even though it
is made in
consideration of services rendered or by way of interest on
money
lent
I can
appreciate the force of several criticisms if loans are treated
as
benefits for this purpose. To have money advanced to one is, no
doubt,
a benefit: but to treat the whole sum advanced as itself
the benefit seems
a curious procedure. Yet the statute makes no
provision for any valuation
of the benefit, since it treats the
payment itself as being the benefit. The
procedure becomes the
more curious when it is discovered that a payment
made in respect
of a loan without interest is treated as equivalent to other
payments
made in respect of loans at normal interest, high interest or
even
exorbitant interest. A loan made within the statutory period
and repaid
before death is treated as equivalent to a loan still
outstanding. I appreciate
the force of these criticisms, as I do
of other criticisms that might be levelled
at the width of the
definition of " periodical payments ". But I am unable
to
find in the wording of the Act any warrant for allowing them to cut
down
what seems to me the arbitrary interpretation that is
deliberately imposed
upon us. It is not as if these criticisms
depended on obscure or complicated
considerations. They are fairly
obvious, and I think that the only possible
conclusion is that the
Legislature, intending to prescribe for a branch of
enterprise
that may often involve what are at least highly artificial
opera-
tions, decided to impose its charge in the widest and most
comprehensive
terms: a decision which excludes the more normal
distinctions between what
is reasonable and what is unreasonable
and the usual connotations of the
English language.
For these
reasons I would be in favour of allowing the cross appeal of
the
Crown and of making a declaration to the effect that for the
purposes
of section 46 Lord St. Levan made a transfer of (a)
the investments and the
equitable interests in undivided shares of
land (b) the settled freeholds and
(c) the £100,000
paid as subscription for the Preference Shares, and a
further
declaration that the moneys advanced to him on loan during
the statutory
period are benefits within the meaning of the same
section.
Lord
Tucker
MY LORDS,
I
have nothing to add to what has already been said in stating my
agree-
ment with the view which is held by all Your Lordships that
for the reasons
which have been given the appeal in the present
case should be allowed.
With
regard to the cross appeal and dealing first with the investments
and
equitable interests, I have formed the view—accepting as I do
that
Lord St. Levan as tenant for life had power under the Settled
Land Act,
1925, to direct a change of investment of the capital
monies—that by
the joint effect of Section 58 (2) and
Section 58 (4) of the Finance Act,
1940, he must be deemed to have
made a transfer, but I think that such
transfer was made by him in
a fiduciary capacity, because the Act which
results in the
notional transfer was done in a fiduciary capacity, so that
the
resulting transfer must be regarded as having been made in
that capacity
It was, moreover, in my view a fiduciary capacity
imposed upon him solely
by the provisions of the Settled Land Act,
1925.
But Lord
St. Levan must, I think, also be deemed to have made a
transfer of
the investments by reason of the Deed of Appointment of 23rd
March,
1927, made by him and Mr. Ponsonby, without which the subsequent
26
direction
and transfer could not have been given and made. In executing
this
deed he was clearly not acting in a fiduciary capacity and this
act
on his part was accordingly sufficient to bring it within
Section 58 (2).
I agree with the view that if one operation which
is within Sub-section (2)
was performed in a fiduciary capacity
and another operation within the sub-
section in a non-fiduciary
capacity the taxpayer cannot avoid the con-
sequence that the
second operation becomes by the " deeming" process
a
transfer within Section 46 (1). My Lords, I do not deal in greater
detail
with this aspect of the case, as I am content to say that
the reasoning of
my noble and learned friend Lord Radcliffe on the
inter-relation of Sub-
sections (2) and (4) of Section 58 and the
results that follow therefrom
appear to me convincing.
When,
however, I come to apply these sub-sections to the transfer of
the
lands the position seems to me wholly different. Here Lord St.
Levan was
himself the conveying party. He was, I think, for the
reasons which have
been stated, acting in a fiduciary capacity
imposed on him by the Settled
Land Act and in such capacity only.
Like my noble and learned friend
on the Woolsack I can see no
ground for calling in aid a " deeming " section
when
that which is to be deemed has in fact taken place without
its
assistance. If the notional transfer is to supersede the real
transfer with
consequences detrimental to the taxpayer this should
I think be made
plain by unambiguous language.
As to the
£100,000 paid for the Preference Shares, I agree that to
refer
to money paid by way of subscription for shares as a
transfer of property
to the Company is an unusual use of words,
none the less, not without
some doubt, I have come to the
conclusion that the words in their present
context are wide enough
to include payment in cash or by cheque. It must
be remembered
that the companies referred to are only those to which
the section
applies and that one of the commonest ways in which benefits
of
the kind enumerated in Section 47 are obtained is as a result of
payment
of money. Furthermore, Section 58 (2) once again requires
consideration
and, although it does not elucidate the meaning of
the word property, it
would be odd if a sum of money which "
comes to be included in the
" resources of the Company "
is not property. Some support for this view is,
I think, also to
be obtained from Section 51.
My Lords,
I am accordingly of opinion that there have been transfers
of
property within the meaning of Section 46 which are not
exempted by the
terms of that section in the case of the
investments and equitable interests
and in the case of the
£100,000 paid for the Preference Shares, but that
the
transfer of the lands is exempted. With regard to the benefits
accruing
to the deceased from the Company, I agree that the sums
amounting to
£3,000 advanced to Lord St. Levan during the 3
years preceding his
death were benefits which accrued to him from
the Company. I feel con-
siderable doubt whether they come within
the definition of periodical pay-
ments in Section 47 (2), a
definition which on the Crown's construction
would include loans
which had been repaid at the date of death, but I do
not regard
Section 47 as containing an exhaustive definition of the word
"
benefits " but merely as enumerating certain matters which are "
to be
" treated as benefits ". It does not, I think,
exclude other transactions, such
as the present, which in the
circumstances of particular cases may clearly
confer benefits on
the deceased in the natural and ordinary meaning of
that word.
I would
accordingly allow both appeal and cross-appeal.
(12700)
Wt. 8025-142 35 7/51 D.L/PA/19
