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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 ..... ntion, 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 including certain categories of property, whether or not the items within th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance 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 it is also in a section 2 category. Nevill v. Inland Revenue Commissioners(2) is a long way from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ceasing on [his] death within section 2(1)(b), and so the exception cannot apply to his case. It is admitted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l***. 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 while he was living and held the office of trustee; it was not attached to the office of trustee. It is conceded that if a testator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -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 resisted the claim on the ground that the interest of the deceased was only an interest as holder of an office and was therefore exempted from estate duty. This plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 the death, namely, Property of which the deceased was at the time of his death competent to dispose, and ask how this category which embraces the whole free estate of the deceased can be excluded from section 1, and, if it must (as it clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge 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 House primarily by Lord Macnaghten but in some degree by other learned Lords also. If in what I have already said I have impliedly criticised, and if in what I now say I venture to challenge, anything that Lord Macnaghten has said, I do so with the greatest diffidence. For I am well aware tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 sections 1 and 2 was not advanced on either side. I return to Cowley's case(4). In the speech of Lord Morris there is at least an indication that the provisions of section 2(1)(b) were uppermost in his mind. The speech of Lord Shand is neutral. In that of Lord Davey I find much that puzzles me. That learned Lord, having said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 case falls within section 2 it cannot fall within section 1. I shall call in aid the last words that I have cited of the learned judge, which appear to me incontrovertible. My Lords, I will now refer to two cases decided in this House, Attorney-General v. Milne## and Nevill v. Inland Revenue Commissioners###. In neither case was the validity of Lord Macnaghten's words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 confusion of mind which Cowley's case** has caused. I come to De Trafford v. Attorney-General***. In that case the material question was the same as the second question in Cowley's case**, and the answer given was inevitably the same. It was unnecessary to consider the relation of the two sections, either of which would cover the case. Lord Russell of Killowen, in whose opinion the other noble and learned Lords concurred, adopted the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 rector)--the last a somewhat difficult conception. Yet in the 65 years that have passed since the Finance Act, 1894, came into operation, such a claim has never before, so far as I or learned counsel are aware, been advanced by the Revenue authorities. In 1947 another trustee of Lord Northcliffe's will died. He, too, was entitled as trustee to a fractional share of the income of the residuary estate. Yet no claim was made for duty in respect of the proporti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 section 2(1)(b) of the Finance Act, 1894. I do not think it necessary to add anything to what has been said on that point by my noble and learned friend, Viscount Simonds. In saying that, however, I have begged the main question that was the subject of argument in your Lordships' House: for the case for the Commissioners of Inland Revenue was founded on the proposition that, though Mr. Arnoholz's interest was conferred by the will as a right to three equal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 one of the categories would or would not have been treated by the courts as covered by the general words of section 1. I can see not significance one way or the other in the fact that it declares its purpose by saying that the categories selected shall be deemed to be included in the property passing which is charged by section 1. Such a phrase gives statutory certainty to what might otherwise be in some aspects uncertain and, in a few, impossible. Thus, subsection (1)(a) names a category, Property of which the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. The real controversy in the Cowley case* was about something different. whether, a mortgage having been effected under a joint power of appointment created by tenant for life and remainderman on a resettlement, what was to be treated as passing on the life tenant's death was the equity of redemption, not the unincumbered fee. It was only when the House of Lords came to deliver their speeches upon that issue that there appeared for the first time in the speech of Lord Macnaghten this theory of the mutual exclusiveness of section 1 and section 2 which is solel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 stood by itself. From that it would seem necessarily to follow, if you allow that on Mr. Arnholz's death a share of the trust capital passed within the meaning of section 1(see In re Northcliffe*, Christie v. Lord Advocate**), that the exemption attached to section 2(1)(b) has no application tot his capital share, since the exemption is attached exclusively to some species of property which section I does not touch. In my opinion, Lord Macnaghen's construction is mistaken. I think that there is no foundation for it to be found in the words or scheme of the Finance Act, 1894, and it introduces into the interpretation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 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 death of the deceased dependent upon and emerging upon the death of the deceased. This is not only very different from, but it also conflicts with, Lord Macnaghten's dicnotmy. Lord Haldane dealt with the function of section 2 on two separate occasions. In Attorney-General v. Milne* he said of it: Section 2 is thus not a definition section but an independent section operating outside the field of section 1. In 1924, on the other hand, in Nevill v. Inland Revenue Commissioners** he laid it down: 'Passes' may be taken as meaning 'changes hands'. The principle is contained in section 1. Section 2 combines definitions of such property with the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to represent the Cowley decision itself, something which, as I see it, they were far from doing. They have become entwined with great deal of judicial analysis of the estate duty scheme. In In re Duke of Norfolk* Lord Evershed M.R. refereed to the celebrated pronouncement as one of the most significant decisions on the interpretation of the Finance Act, 1894. Even so, despite its fame, there seem to have been very few cases in which the application of Lord Macnaghten's formula has made any practical difference either in the incidence of duty or in the quantum of duty charged. In nearly every case it does not matter whether the property is regarded as passing under section 1 or under section 2, as actually passing or as n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Lord Northcliffe's residuary estate corresponding to the share of the income thereof to which Mr. Arnholz was entitled immediately before his death on the footing that it had passed on the death of Mr. Arnholz within the meaning of section 1 of the Finance Act, 1894, but the appellant resisted this claim on the ground that liability to duty was avoided by the effect of the words in paragraph (b) of subsection (1) of section 2 of the said Act, which excludes property the interest in which of the deceased...was only an interest as holder of an office, or recipient of the benefits of a charity, or as a corporation sole. The respondents contended (1) that this exception has no application in relation to property which passes within the meaning of section 1, and (2) that in any event the interest of Mr. Arnholz's in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption, 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 mutually exclusive. Section 1 might properly, I think, be headed, 'With regard to property passing on death, be it enacted as follows.' section 2 might with equal propriety be headed,' And with regard to property not passing on death, be it enacted as follows.' I cannot, therefore, agree with Rigby L.J. when he says that section 2 is a provision 'explanatory' of section 1. In my opinion the two sections are quite distinct, and section 2 throws no light on section 1. But, then, no doubt section 2 speaks of property in which the deceased...has an interest ceasing on the death of the deceased'. And that, it may be said, was just the position of the second Earl with regard to the Mornington settled estates. So it was. But section 2 does not apply to an interest in property which passes on the death of the deceased. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel 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 agree. The material excluding provisions could equally have been expressed as a separate subsection thus: property passing on the death of the deceased shall not be deemed to included property the interest in which of the deceased or of some other person having an interest ceasing on the death of the deceased was only an interest as holder of an Officer, etc. Had it been so expressed the provisions would plainly have been on a par with subsections (2) and (3), and I do not think the situation has been altered by the fact that as a matter of convenience and for the sake of brevity it is included in subsection (1)(b) of section 2. I prefer to conclude that Lord Macnaghten's mind was not directed to any of the excluding provisions in any part of sub-section (2) and that had his attention been called to them he would have modified his observations so as to reserve that point. In exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier 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 and learned friend, Lord Radcliffe, in the recent case of Sanderson v. Inland Revenue Commissioner(9) would seem to be the only expressions of opinion in this House indicating anything other that a complete acceptance of Lord Macnaghten's pronouncement. It is impossible to say what effect a departure form a practice based on this pronouncement may have on the future development of estate duty law, but it could be, I should think not inconsiderable and may lead to the building up of a new body of estate duty decisions. In this situation I would examine afresh, but very briefly, the Cowley case(1). I would first observe that when Lord Macnaghten referred to section 2 of the 1894 Act he was clearly thinking of section 2 (1) of the Act. His observations could have no application to section 2(2) or section 2(3) of the Act, which brought in exceptions to the operation of section I and which had no relevance at all to the subject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 estate duty law entered upon afresh. It is not, I think, possible to say that each of the categories in section 2(1) has not a content that would apply to case that could not come under section I and which would be sufficient to explain the purpose of section 2(1). And I cannot think that, if there had been no section 2, the courts would have had any difficulty in determining in the vast majority of cases what property passed on death, particularly having in view the definition in section 22(1)(l). It would undounbtedly have been a more limited, category than the legislature intended when it introduced section 2. But as section I includes property settled or not settled and as on a cesser of life interests in settled property on death there has been held to be a passing of property under section I, without any reference to section 2, it might reasonably be assumed that this result would have been reached if there had been no section 2(1) in the statute at all. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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