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TMI Blog1953 (12) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 1924, he had held and thenceforth would hold the property and the rents, issues and profits thereof upon the trusts and with and subject to the powers and provisions hereinafter expressed concerning the same, that is to say: . The first two clauses following thereupon were as follows:- 1. Upon trust that I or other the trustee or trustees for the time being of these presents (hereinafter called the trustee) shall either retain and use the said lands or at the trustee's absolute discretion at any time or from time to time sell and convert into money the same or any part thereof and invest the proceeds of such sale and conversion upon such securities real or personal and whether authorized by law for the investment of trust funds or not (and with liberty from time to time to vary and transpose the investments) as the trustee shall in his uncontrolled discretion think fit. The said lands and proceeds of sale be invested are hereinafter called 'the trust fund.' 2. That the capital and income of the trust fund shall be held by the trustee upon trust for the said Leslie William Friend and his children Henry James Friend, Donald Stuart Frie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omprising the trust fund for public or charitable purposes either gratuitously or for such consideration as the trustee may think proper to accept. In 1928 the deceased as trustee sold Ellerston and invested the proceeds in another grazing property known as Glendon and in certain mortgages, and he continued to manage that trust property until his death. He fixed from time to time amounts to be received by himself as remuneratiion under clause 4(j) quoted above. He received for each of the first six years 3,000 and thereafer smaller sums; for the last three years before his death he only received 100 per annum. After deducting those and other outgoings and expenses he divided the profits from the trust properties into five equal shares, crediting one share to himself and one share to each of his children. As stated by the commissioner in the case stated: The amounts credited to each such child were paid or applied by the testator for or towards the maintenance and education of such child or were paid to the mother of such child for or towards his or her maintenance and education or were paid to such child after he or she had come of age. Before his death all his childr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1953. Oct. 6, 6, 7, 8, 12, and 13 Sir Garfield Barwick Q.C. (Australia) and R.O. Wilberforce for the appellant. The question is whether the donor took any benefit which was referable to or trenched upon the gift to the donees. The correct approach to the question is to consider what precisely was the subject-matter of the gift, and then to ascertain whether bona fide possession thereof was immediately assumed by the donees, and whether such possession was retained to the exclusion of the donor or of any benefit to him whatsoever-whether the benefits or any of them affected the possession and enjoyment of what was given: Commissioner for Stamp Duties of New South Wales v. Perpetual Trustee Co. Ltd.(1) Taking the trust deed as a whole, what was given to the beneficiaries consisted of equitable interests deriving their origin and their limitation from the trust deed itself. Ab initio and in their nature they were subject to certain limitations, but such as they were, they were given outright to the beneficiaries and they entered forthwith with full enjoyment of them. The majority of the High Court of Australia in effect regarded the powers given to the trustee as reservations out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the possession and enjoyment of those rights and interests the donor was then and thenceforward excluded. Because he took a benefit in the form of a right to remuneration out of the fund with respect to which the donees' limited interests were declared, it does not mean that he was not excluded form all benefit from the donees' possession and enjoyment of their right and interests. The principle to be taken from Munro v. Commissioner of Stamp Duties(2) is that one looks to see in substance what the settlor was, and what he was not, parting with; and, secondly, that case is an illustration of how a settlor remained, to all outward intents and appearances, in precisely the same situation after the gifts as he was in before. The sort of benefit contemplated is one which prevents the donees' enjoyment of what was given to them; it is not anything that the donor can enjoy currently with them. In this case the donees have never had the power to interfere with what the settlor did from the inception by his own deed poll; they at no time got a right to prevent the enjoyment by the trustee of the beneficial right to have remuneration. Munro's case(2) shows that what a sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s one property. The answer to that is that it was not case of four one-fifths being worked together; the legal estate in the land so vested in trustees was one freehold; and further, any advantage thus gained was equally gained by all, and was not enjoyed by any at the expense of any other, and so did not trench upon the children's interest. The Supreme Court of New South Wales was in error in holding that the owners of undivided shares necessarily receive a benefit by reason of the existence of other undivided shares; in any event the existence of such a benefit does not prevent full possession and enjoyment being assumed by the donee of each share. The next suggested benefit is the relief of the donor's legal and moral obligation to maintain his children which use of their money for that purpose is said to afford. The first answer is that the power to use the money was statutory, under section 43 of the Trustee Act, 1925, and he could only use their money to maintain them. It was a fiduciary power to be exercised in the child's interest with its own money, and was not a benefit to the trustee. If it were suggested that the use by the father of the children's money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad the beneficial estate, and the only persons who had the beneficial estate were in terms the tenants in common in equal shares--the father and the children--and all that happened subsequently were merely administrative powers and discretions given to the trustee. With regard to the words subject to in the deed, see Commissioner of Stamp Duties v. Owens(2), and on the meaning of power, Ex parte Gillchrist(3). The scheme of the deed is, first, to make a grant to himself and his children of the land as tenants in common in equal share, and what he gave were tenancies to the children, vested, but subject to being divested, with gifts over and accruer to the others, including the settlor, if any child died under 25. The settlor got an absolute vested interest in his own undivided share, plus a right to join in the accruer clause. It is important to observe that there is no imperative trust for sale. Clause 4 contains powers and discretions, some of them being of a trust nature. Unfortunately for the settlor, he should not have made himself a trustee and given himself those powers, because some of them amount to benefit within the meaning of the section. According to its scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in the Archer-Shee case(6). Lord Sudeley's case(4) was considered in McCaughey v. Stamp Duties Commissioner(7). If Lord Sudeley's case(4) was correctly decided it does not prejudice the submission for the respondent here, in that it related to the position of beneficiaries and was not to be applied to the case where on the trust construction of the deed in question the gift was of the income and not of residue. There were here benefits received by the settlor which trenched on the gifts to the donees. The first benefit--not necessarily in order of importance--was the right to partition in clause 4(h). The settlor had a right to partition his own share, and that trenched on his children's full enjoyment of possession. [Reference was made to Greenwood v. Percy(8).] With regard to the use of income for the support of his children, the deceased was under both a statutory and a moral obligation to maintain his own children, and it was thus very much to his benefit that he should use his own children's money for their support. Under the section he must not get a benefit of any kind, and it is not to the point that it is lawful. If what he did is not covered by secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... divisible situation whereunder the deceased retained all the benefits which ordinarily flow from the absolute ownership of a grazing property. It is the clear intention of the act that property should not be withdrawn from the taxable estate of its owner by a gift unless the gift and exclusion of the owner from possession and enjoyment of the subject-matter of it for the rest of his life are immediate and absolute. The settlor here received a benefit even though it did not impair the thing given, and his conduct attracts the attention of the section. Sir Frank Soskice Q.C., following. The settlor had a special possession, and qua manager he retained a type of possession such as is envisaged by the Act and which impaired the possession of the others. As a matter of actual physical fact, he was in possession such as entitled him to dominate over the possession which each of the tenants in common had and the result of that was he could not be said to be excluded from possession, and that he had a possession which trenched on the possession which each of the donees had. Sir Garfield Barwick Q.C., in reply. The equitable tenancy in common could only be possessed and enjoyed throug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ildren's income? The suggested benefit is the expenditure on the children of their own money. The right is a fiduciary power; he cannot benefit himself at their expense; and secondly, the circumstance that the due exercise of the fiduciary power may produce a benefit is irrelevant. [Reference was made to Way v. Commissioner of Stamp Duties (N.S.W.)(5)]. As to the argument that the settlor as manager had a special possession, it is submitted that his possession was theirs. The Lord Sundeley case(1) and Cooper's case(2) have recently been considered in In re Cunliffe- Own(3). If a benefit there be to the settlor in the terms of the deed or in the performance of them, no such benefit (a) prevented the donees from possessing and enjoying what the deed gave them, or (b) displaced the donees in any respect from that possession and enjoyment which they assumed on the execution of the deed. 1953, December 3. The judgment of their Lordships was delivered by LORD REID, who stated the facts set out above and continued: The appellant admits that the value of one-fifth share of the whole trust property was properly included in the final balance of the deceased's estate, but co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; whereas section 11 and section 43 only bring in any benefit to him by contract or otherwise. But that difference was not founded on in argument and is not material in this case. These sections have given rise to much litigation and British authorities have frequently been cited in Australian cases and vice versa. In St. Aubyn v. Attorney-General(1) the earlier cases, including the Australian cases, were fully considered. In their Lordships' judgment it is now clear that it is not sufficient to bring a case within the scope of these sections to take the situation as a whole and find that the settlor has continued to enjoy substantial advantages which have some relation to the settled property; it is necessary to consider the nature and source of each of these advantages and determine whether or not it is a benefit of such a kind as to come within the scope of the section. Their Lordships will first consider whether the use of the income which accrued to the settlor's children from the settled estate was such as to bring the case within the section. If property comprised in a gift is to be excluded from the estate of the deceased donor the statute requires that bona f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e children's maintenance until December, 1925, that it appeared from the case that the deceased had so spent his children's money before that date and that therefore at least to this extent the deceased had acted improperly and it could not be said that ]the children's money had been applied for their benefit. This argument fails because there is nothing in the case to show that any of the children's money was spent before December, 1925. No doubt there was ultimately spent income which accrued in respect of the period before that date; but the trust only operated as from July 1, 1924, and thereafter income had to be earned, accounts had to be made up, the children's shares had to be credited to them, and after that some time may have elapsed before the money was spent. Their Lordships are not prepared to assume that the money was spent before the date which is crucial for this argument. Then it was said that even if the income which accrued to the children was properly spent for their maintenance and they are to be held to have had full benefit and enjoyment of it, yet there was also a benefit to the deceased because if it had not been available he would hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances that the son had not obtained the enjoyment of what was given free from a contractual benefit to the father which encumbered the enjoyment of the very thing that was given. To hold otherwise would have been to stop at the mere form of the transaction. Then he added(4): But I think it a very mistaken form of reasoning 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 mischief of the section, whether they are by way of reservation out of the subject-matter of the gift or not. And Lord Simonds said(1): 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 Attorney-General v. Worrall(2) 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 'exclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e view that the entire exclusion of the donor from possession and enjoyment which is contemplated by section 11(1) of the Act of 1889 [the forerunner of section 43 of the Finance Act, 1940] 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 had not included in the gift is not inconsistent with the entire exclusion from possession and enjoyment which the sub-section requires.' (3) It follows that if the right to take remuneration could be regarded as a beneficial interest in the property reserved by the deceased when making the deed of trust, then his remuneration would not be a benefit within the scope of the section. But their Lordships cannot regard a right to take remuneration for managing property as a beneficial interest in the property. A trustee is not permitted to take remuneration for services performed by him unless he is authorized to do so; in this case the trustee was authorized to do so because the deceased provided in the deed of trust that he as trustee or the trustee for the time being should be e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or to his son. The disposition of that interest was effected by the creation of a trust, i.e., by transferring the legal ownership of the shares to trustees, and declaring such trusts in favour of the son as were co-extensive with the gift which the settlor desired to give. The donee was the recipient for the gift; whether the son alone was the donee (as their Lordships think) or whether the son and the body of trustees together constituted the done, seems immaterial. The trustees alone were not the donee. They were is no sense, the object of the settlor's bounty. Did the donee assume bona fide possession and enjoyment immediately up on the gift? The linking of possession with enjoyment as a composite object which has to be assumed by the donee indicates that the possession any enjoyment contemplated is beneficial possession and enjoyment by the object of the donor's bounty. This question therefore must be answered in the affirmative, because the son was (through the medium of the trustees) immediately put in such bona fide beneficial possession and enjoyment of the property comprised in the gift as the nature of the gift and the circumstances permitted. Lord Russell was t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts which the donors neither permitted him to derive nor had any power to deny him. They were in this position of impotence, not by their own choice, but because the deceased, in exercise of his right to give exactly what interest he liked and withhold exactly what he liked, had chosen to give them interest so hedged about as not to enable them to exclude him from those benefits. It was for him, when framing his deed, to delimit the interests he was parting with, and he did delimit them, not by any on part of the deed considered by itself, but by the entirety of its provisions. The donees had no voice in deciding to what extent their interests should be subject to rights, powers or privileges retained by the deceased. They got interest which were limited ab initio, by the terms of their creation; and the limits were such that the interest were inherently insusceptible of being so possessed and enjoyed as to preclude the deceased from deriving those benefits which in fact he derived. It is true that the deceased did not exact from his children his power to take benefits and that the benefits which he took were benefits which they neither permitted him to derive nor had any power ..... X X X X Extracts X X X X X X X X Extracts X X X X
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