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TMI Blog1959 (12) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... contrary to the Public Trustee's contention, estate duty became payable in respect of Mr. Arnholz's death on that part of Lord Northcliffe's residuary estate. At the date of his death on August 31, 1955, Mr. Arnholz was, in the events which had happened, entitled to a fractional share amounting to 3/49? of the income of Lord Northcliffe's residuary estate. This he enjoyed under a bequest in clause 6(26) of Lord Northcliffe's will to him "during his life so long as he shall act as executor and trustee of this my will by way of remuneration for so doing." The Public Trustee was the executor of the estate of Mr. Arnholz. John Pennycuick Q.C. and J.A. Wolfe for the appellant. The enjoyment of Mr. Arnholz was that of a holder of the office of trustee, and so, on the true construction of the will, his "was only an interest as holder of an office" within section 2(1)(b) of the Finance Act, 1894. Section 1 of that Act is the only charging section and it charges property which passes on the death of a person. Section 2 provides that the subject-matter comprised in "property passing on the death of the deceased" shall be treated as includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed had an interest ceasing on the death of the deceased within section 2(1)(b) of the Finance Act, 1894, and in which a benefit accrued or arose by the cesser of such interest, was the equity of redemption in the Mornington estates subject to the mortgage for ? 230,000. "In Attorney-General v. Dobree(3) what Lord Macnaghten had said was criticised and the sections were put into their proper relationship. The charge is only under section 1. The subject-matter of the charge is property passing on the death of the deceased. One may have property which changes hands on the death of the deceased, and so "passes" in the ordinary and natural meaning of the word. Section 2 does not operate by the mere addition of certain items. It enumerates the items which are to be deemed to be property passing on the death, whether or not they actually pass, according to the ordinary sense of the words. In Attorney-General v. Milne(1) what Lord Dunedin and Lord Parker said supports the view which the appellant now submits. When one finds property which actually changes hands under section 1 alone, it is only in exceptional circumstances that it would be important to decide whether or not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... requirement in section 2(1)(b) that the interest of the deceased should be "only an interest as holder of an office" is satisfied where not only is the income of the fund payable to him so long as he holds the office but also where it is remuneration for his services in the office. If an annuity of ? 100 a year is payable to trustees as remuneration for their services as such, the trustees are entitled to it only as holders of the office. If a company makes a seven years' service agreement with its managing director for payment of ? 5,000 a year to him, he is only entitled to it as holder of an office: see Attorney-General v. Eyres* and Dale v. Inland Revenue Commissioners**. The House of Lords is not bound by authority to decide against the appellant. E.B. Stamp (Sir Lynn Ungoed-Thomas Q.C. with him) for the respondents. The exception in section 2(1)(b) of the Act of 1894 on which the appellant relies applies only to that paragraph and not to property which passes on the death within the meaning of section 1. The terms of the bequest to Mr. Arnholz did not mean that the trust fund in which he enjoyed the interest was property in which he had "an interest ceasi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion is not to be regarded as obiter just because he has given another reason as well: see Jacobs v. London County Council***. In Cowley's case# the ratio decidendi was simply that if a case falls within section 1 without the aid of section 2(1), one is not concerned with section 2(1). Attorney-General v. Beach## does not carry the matter further, but De Trafford v. Attorney-General### does. In that case it was part of the ratio decidendi that the matter did not fall within section 2(1)(b), which, accordingly, could not be considered. To find in favour of the appellant would involve overruling In re Duke of Norfolk(1) and also Lambton's case(2). In both Adamson v. Attorney-General(3) and Attorney-General v. Lloyds Bank Ltd.(4) the House of Lords approached the matter on the footing that sections 1 and 2 are in separate compartments. One need not trouble with Burrell v. Attorney-General(5). Even if the exception in section 2(1)(b) does operate on section 1, it does not apply to the appellant, because the interest which the deceased had in the property was not "only an interest as the holder of an office." The interest was given to the deceased as an individual whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... General# or that in the Lambton case##. To find in favour of the appellant it is not necessary to overrule any other case or to interfere with long-established principle. Within the plain meaning of the words the interest of Mr. Arnholz was only as the holder of an office. The word "office" has a wide meaning. Two executors administering a simple estate hold an office and, if they are remunerated, it is only as holders of an office. Their Lordships took time for consideration. Dec. 14. VISCOUNT SIMONDS. My Lords, at the date of his death on August 31, 1955, the late Henry Preuss Arnholz was, in the events that had happened, entitled to a fractional share amounting to 3/49? of the income of the residuary estate of the late Lord Northcliffe. This income he enjoyed under a bequest in Lord Northcliffe's will to him "during his life so long as he shall act as executor and trustee of this my will by way of remuneration for so doing." Upon his death a claim was made against the Public Trustee as his executor for estate duty on a share of Lord Northcliffe's residuary estate corresponding to the share of income to which he was entitled. The Public Trustee resi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be no doubt that but for the deeming they would not pass. Then, appropriately enough, there follow subsections (2) and (3), of which subsection (2) deals with property situate out of the United Kingdom, including some part and excluding other part of such property from "property passing on the death of the deceased," and sub- section (3) (having recourse once more to "deeming") provides that property passing on the death of the deceased shall not be deemed to include property held by him as trustee, and so on. My Lords, if I were today looking at this Act for the first time, I should say that these sections were straightforward and clear, the first section imposing the charge in general terms and the second defining by inclusion and exclusion the precise area of that charge. I should unhesitatingly reject any suggestion that the two sections were in any way mutually exclusive or, as a corollary, that, if any property clearly "passed" on the death of the deceased under section 1, it was unnecessary to look at section 2. I should point to the first category of property which under section 2(1)(a) is to be deemed to be included in property passing on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (2)(1)(c) and (d). These subparagraphs bring the subject-matter within the area of charge which without a "deeming" clause would remain outside it. Nor need I say more about section 2(2) and (3) than that in a section which comprehensively describes the area of charge I find, as I expect, a description of those categories of property and interest which are outside that area. Thus, my Lords, I come to the end of my examination of sections 1 and 2 with the clear conviction, which is not weakened but rather is confirmed by other sections, that section 2 is a categorical description of the property "settled or not settled," upon which the new estate duty is imposed. How is it, then, that in the present case Danckwerts J. and the Court of Appeal have come to a conclusion which rests upon a finding that the words of exclusion in section 2(1)(b) have no relevance to a life interest enjoyed by a person as holder of an office? My Lords, they have been driven to this conclusion by those considerations which led me at the outset of this opinion to say that I have found this simple case so difficult to decide. They are founded upon expressions of opinion in this Hous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at section. Nine months passed, the case of Attorney-General v. Beech(1) having in the meantime been decided in this House, and then the judgment was given in which for the first time in the familiar words of Lord Macnaghten(2) the suggestion was made that "if the case falls within section 1 it cannot also come within section 2. The two sections are mutually exclusive." It is undeniable that the learned Lord expanded on this theme. But to me it seems plain that his observation was per incuriam, and that when he said(2): "Section 2 might with equal propriety be headed,' and with regard to property not passing on death,'" he had forgotten subsections (2) and (3) of section 2 and forgotten, too, the words of section 2(1)(a) and the definition of those words in section 22(2)(a). No other explanation of his speech has ever to my knowledge been offered until this hour. My Lords, I do not get any assistance from Beech's case(3) which, as I have said, was heard and determined while Cowley's case(4) was in gremio. But it is at least clear that the Revenue claim was based on section 2(1)(b) (see bottom of p. 53) and that the mutual exclusiveness of sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mind there is a little difficulty in fully following the exact literal words of Lord Macnaghten's judgment in Earl Cowley v. Inland Revenue Commissioners* with respect to cases falling within sections 1 and 2. It is quite true that if you can arrive at the conclusion that the case falls within section 1, then section 2 may be said to be excluded--you do not want section 2. But one of the operations of section 2 seems to me clearly to be to sweep into section 1 some cases which might be doubtful upon the construction of section 1, but which section 2 includes in clear words, and therefore brings them in to be subject to the duty whether they were within section 1 on the true interpretation of it, or not. I think Lord Macnaghten must have meant that in such cases, if you took the trouble to decide whether they were within section 1 or not, and came to the conclusion that they were, then you would not want section 2. At any rate, it was not necessary for him in the case before him to express an opinion contrary to what I have said." These observations were no doubt directed to the argument of Mr. Haldane Q.C.#: "The two sections are distinct and mutually exclusive. If a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er's words(8): "It is in no sense a definition section." If so, I would agree with it, as, I think, did my noble and learned friend, Lord Radcliffe, in a case to which I will presently refer. Lord Dunedin took a different view. Having said that whether Lord Macnaghten was strictly correct or not in saying that whether the two sections were mutually exclusive or not seemed to him to matter little, he added(9): "It seems to me that that is as much as to say that the words, 'property passing on the death,' in the first section, are to be read as if the words, 'including the property following, that is to say '--(and then all the subsections) had been there inserted." My Lords, I find it difficult to see how Lord Dunedin's view could march with Lord Macnaghten's words. But perhaps his statement that it mattered little whether Lord Macnaghten was strictly correct or not meant that he thought he was clearly wrong. The next case in this House upon which reliance was placed was Adamson v. Attorney-General*. But I think it unnecessary to pause over it, for it throws no light on the inter-relation of the two sections except to illustrate the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the speeches of all the Lords who took part in that case is correct, but my purpose in citing this case is to show into what confusion the law has been thrown when the Revenue authorities, whose duty it is to administer this difficult branch of the law, advance at one time an argument founded on Lord Macnaghten's dictum and at another an argument directly opposed to it. And, lest it should be said that Cassel's case** is, after all, ancient history, I will remind your Lordships that as recently as 1950 in In re Duke of Norfolk*** it was argued by counsel for the Crown that the fact that duty can be claimed in respect of the passing of an annuity under section 1 does not preclude a claim for duty under section 2(1)(b). This brings me, my Lords, to a point directly apposite to the present appeal. The contention of the Crown, which has so far prevailed, is that the excluding words in section 2(1)(b) have no application where property passes under section 1 and that, therefore, duty is payable in respect of property held by the holder of an office for his life, or presumably by a recipient of the benefits of a charity for his life or by a corporation sole (for example, a re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erely enjoyed as an individual so long as he held a particular office." If these words are intended to cut down the plain words of exception in the subsection, I see no justification for substituting them. The words of the statute and of the will are equally clear. Mr. Arnholz received a share of income during his life so long as he acted as executor and trustee of the will by way of remuneration for so doing. His trusteeship was an office and there is no reason for saying that his beneficial interest in the property was any other than in respect of that office. This is in accordance with the decision in Attorney- General v. Eyres**, the correctness of which has never, I think, been questioned. In these circumstances, I am of opinion that the judgment of the Court of Appeal should be reversed, that the question asked by the originating summons should be answered in the negative and that the respondents should pay the appellant's costs here and in the courts below. LORD RADCLIFFE. My Lords, I agree that the interest of the late Mr. Arnholz in the income of Lord Northcliffe's residuary estate was It only an interest as holder of an office" within the meaning of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ath. "It would be appreciated that the words "passing on death" had not at that time any precise significance in law; that they were not words of art or technical import; and that the conception of "estate duty" that was then being imposed was in many of its aspects radically different from the conceptions that had governed the familiar legacy and succession duties. Nor, since it was to be imposed on property settled as well as property not since it was to present itself as another form of probate duty. So approached, section 2 seems to be a natural sequel of section 1. Its purpose is to explain and refine upon the meaning of the words "property..................which passes on.................death "which section 1 had declared to be subject to the charge of duty. Sub-section (1) therefore selects certain categories of property and, aided by the interpretation section, section 22, brings them expressly under the description of property passing on death, indifferent to the question whether, if it itself had not been part of the original scheme of the Finance Act, 1894, any one of those categories or any particular form of property falling within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n death, should be subject to or exempt from duty. Subsection (3) deals with the special case of the passing of property on the death of a trustee holder. No one has ever questioned that the rules of inclusion or exemption contained in subsections (2) and (3) apply to all property within, or that would otherwise be within, the charge imposed by the terms of section 1. I think that in the first years after the 1894 Act came into force its structure must have been generally understood to be as I have described it above. In particular section 2(1)(b) was regarded as being applicable to the interest of a life tenant of settled property. No doubt, this era must now be looked back upon as some primitive golden age in the history of judicial dealings with the Estate Duty Act: but I cannot otherwise explain how it was that when Earl Cowley's case* came before the courts, it was throughout argued by counsel on both sides on the basis that it was the words of section 2(1)(b) that provided the statutory rule for determining what property passed on the termination of life interest in settled property such as was then in question. Neither side raised or argued any issue to the contrary. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der" section 1, it did not matter whether it was section 1 or section 2(1)(b) which provided the governing words, since in either case the practical result would be the same. What the House did not decide is the question which we have here. That question can be set out as follows: If words of section 2(1)(b), "Property in which the deceased......has an interest, ceasing on" his "death," are a fit and natural description of the property upon which, duty is claimed, are the words of exemption found in that subsection, which relate to the holder of an office, a recipient of charitable benefit or a corporation sole, to be ignored, merely because the property would have been charged with duty by force of section 1, even if there had been no section 2(1) at all? Now, if we were to treat Lord Macnaghten's own reading as if it had binding authority, I think that we should be compelled to answer that we must ignore them. For the construction that he adopted was that the categories of property which are spoken of in section 2 are only such "residual" items of property as would not have been charged by section 1 as passing on death if section I had stoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which passes on the death of an office holder, recipient of charity, or corporation sole, the enjoyment of a residence stands, I should say, first. It is worth observing how various have been the explanations of section 2 which have been given in this House since the Cowley decision*. Perhaps the only common ground is that it is not a definition section: and that I follow, thought I think that Rigby L.J. 's description of it as an "explanation" section** comes very near the truth. My citations are not exhaustive, but they include the following. In Attorney- General v. Beech*** (a case which was heard after, but decided before, Cowley* Lord Watson said: "It apparently was anticipated that a court of law might place upon these words, 'which passes on the death of such person,' a construction limited to property which passed in the ordinary sense of the term from the deceased into the possession and property of another person after his death. But the second section of the statute widens that interpretation very much; for it extends it to all cases where a survivor of the deceased takes a succession, or I should say rather derives a benefit by reason of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eliberate opinion as to the construction of the Finance Act, 1894, was on this point quite wrong. That is an unusual situation, for we are accustomed to regard with exceptional respect any pronouncement on law by that great judge. Moreover, one would expect him to have been peculiarly familiar with such a matter as the scheme and purport of this remarkable Act. I can only say that, just as it was his talent to see further beneath the surface of the law than most judges and to discern it clarity what, until he revealed it, had been unseen, so on a very few occasions he may have been led to perceive what was actually not there. I think that this must have been one of those rare occasions. The second disturbing aspect of out decision is the possibility that it may invalidate the reasoning upon which a number of other decisions on estate duty have been founded. Lord Macnaghten's exposition of the interrelation of section 1 and section 2 contained the essential characteristics of a statement of legal principle: it was expressed in very precise language, and with a confidence that excluded the possibility of any alternative view. Indeed, it was not long before his words were taken t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y on another occasion to find out whether they would have been decided differently even if Lord Macnaghten had never spoken and to what extent in such cases a valuation according to section 7(7)(b) would produce any result materially different from a valuation according to section 7(5). Here it is necessary only to note their existence; and to observe with relief that, apart from them, there does not seem to be any line of cases the issue of which would be changed by a refusal to apply Lord Macnaghten's formula for the future. I would allow the appeal. LORD COHEN. My Lords under the will of the late Viscount Northcliffe, the late Henry Preuss Arnholz (to whom I shall hereafter refer as "Mr. Arnholz") was entitled immediately prior to his death to three of the 49? shares of the income of the residuary estate of Lord Northcliffe. The interest in the income which Mr. Arnholz enjoyed was expressed by paragraph (26) of clauses 6 of Lord Northclife's will to be given to him "during his life so long as he shall act as executor and trustee of this my will by way of remuneration for so doing." The respondents claimed estate duty on the share of the capital of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in section 2(1a)(b) would apply to the case now before your Lordships, but it was argued that your Lordships were precluded from so holding by reason of the decision of this House in Earl Cowley v. Inland Revenue Commissioners**, and in particulars by the reasons given by Lord Macnaghten for his conclusion. The short facts of that case were that a father and a son, after disentailing, had mortgaged certain estates to an assurance company to secure ? 230,000, and had then resettled the estates so that, subject to a charge of annuity for the son during his father's life, the estate were held in trust for the father for life, and after his death for the son, with remainders over. The House of Lords held that the case fell under section 1 of the Act, and that the property which passed on the father's death was the equity of redemption, without any deduction for the annuity. Thus there were two questions: First, was what passed the estate or was it only the equity of redemption? And, secondly, should a deduction be made from the value of the estate or the equity in respect of the annuity? In answering the first question Lord Macnaghten said***: "The two sections are mutua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 2." My Lords, I return to Cowley's case**, having in mind what was said by Jessel M.R. as to the use of authorities in Hood v. Newby#. He said: "You must always look to what was being discussed by the judges as well as to the words used." Now, applying the principle thus laid down by the Master of the Rolls, in Cowley's case** it is manifest that Lord Macnaghten had not in mind the excluding provisions of section 2, and in the case before your Lordships counsel for the respondents admitted that sub-sections (2) and (3) would apply to property passing under section 1. This admission was justified by what was said by Lord Parker of Waddington in Attorney-General v. Milne##: "It" [section 2] "also artificially limits such ambit " [the ambit of section 1] "by excluding certain kinds of property which do in fact pass at the death." Counsel for the respondents argued, however, that the position was different as regards the excluding provision in section 2(1)(b); this provision, he said comes into the deeming provisions of section 1and Lord Macnaghten's dictum must apply tot he whole of subsection (1). My Lords, I am unable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to hold "that sections 1 and 2" [of the Finance Act 1894] "are mutually exclusive and that the application of section I accordingly precluded recourse to section 2, subsection (1)(b)." (3) Jenkins L.J. proceeded: "In my judgment the judge was clearly right in the conclusion to which he came, and the principles by which he was guided in arriving at it are no less binding on this court than they were upon him." These views are not, of course, binding on this House, but they evidence the general acceptance of an interpretation of the statute that plainly stems from Lord Macnaghten's pronouncement. And similar recognition of this view is not wanting in this House. It has been accepted by various of their Lordships in Attorney-General v. Milne(4), Adamson v. Attorney-General(5), Attorney-General v. Lloyds Bank Ltd.(6), and Christie v. Lord Advocate(7), in which case Lord Russell of Killowen had his earlier judgment in In re Cassel(2) before him. A somewhat ambiguous passage in the speech of Lord Haldane in Nevill v. Inland Revenue Commissioner(8), a shadow of a doubt by Lord Dunedin in Attorney- General v. Milne(4) and the doubts expressed by my noble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including property that came under section I. His reference to the view of Rigby L.J. alone shows that the matter was clearly before his mind. Property coming under section 2 is thus brought within section 1 and section 2(1) has nothing to do with property which from its own nature passes on death without any need of a deeming provision. I do not say that initially this was the construction that need necessarily have been taken of the relationship of the two sections. Rigby L.J. in the Cowley case* took a different view, as did Channel J. a few months later in Attorney- General v. Dobree**, and the opinions expressed in the speeches delivered by your Lordships in the present case show that the opposite view was always open. What I have said is intended to epitomise in a few words what I understand to have been the train of reasoning in Lord Macnaghten's mind, as expressed much more fully in his speech delivered in the Cowley case***. I find it necessary to quote passages from a speech, already examined by your Lordships and so well known in the law, to elaborate the point. I am not convinced that what has been accepted as settled law should now be reversed and a new chapter of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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