Public Trustee v Federal Commissioner of Taxation

112 CLR 326

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(Judgment by: Windeyer J)

Between: Public Trustee
And: Federal Commissioner of Taxation

Court:

Judge:
Windeyer J

Subject References:
Estate Duty (Cth)

Judgment date: 13 November 1964

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Judgment by:
Windeyer J

This is an appeal by the executor of the will of the late John Jeremiah O'Donoghue, against an assessment of duty under the Estate Duty Assessment Act 1914-1962 (Cth). The testator died on 14th December 1962 leaving real and personal estate of a total value of 75,169 Pounds. By his will, dated 3rd October 1960, he appointed the appellant, the Public Trustee of South Australia, as his executor. After some pecuniary legacies - to relatives, various charities, several Roman Catholic parish churches and for masses - amounting in all to 16,500 Pounds, he left the residue of his estate by a clause in the following terms:

"I direct that my trustee shall hold the residue of my estate upon trust for the Roman Catholic Archbishop of Adelaide in the said State to be expended by the said Archbishop for the benefit of Catholic Charities in such manner as he in his absolute discretion shall think fit and I declare that my trustee shall not be bound to see to the application and expenditure of such moneys."

The question is whether the amount of the residuary estate is dutiable as the Commissioner claims or, as the objector claims, is exempted from duty by s. 8 (5) of the Act. That the residuary clause is a valid charitable bequest is beyond doubt: Smith v. West Australian Trustee Executor & Agency Co. Ltd. (1950) 81 CLR 320 It gives the Archbishop an unfettered discretion as to the manner in which the moneys left to him shall be expended provided they be expended for the benefit of "Catholic Charities": both words are spelt with capital initial letters in the will. It was not suggested that this phrase, "Catholic Charities", denoted for the testator certain particular charities. It was conceded that prima facie it would be apt to denote any purpose or undertaking that would be a charity in the legal sense, provided that it was conducted by or in some sense connected with the Roman Catholic Church or some one of the religious Orders within that Church.

An application of the moneys to directly ecclesiastical purposes or to a Roman Catholic school would, it seems, on this construction be within the description. But it may be that the word "charities" in the phrase "Catholic Charities" was meant to have here a lesser denotation than that which in its full sense it has in law, and that Catholic Charities in the will should be read as referring to undertakings having such purposes as the care, succour and aid of the sick, the needy and the helpless. But even if one assumes that this is what the testator meant and that it is in that way that the Archbishop would feel himself bound to apply the fund, the choice that he could lawfully make would still it seems have allowed him to apply the fund otherwise than for one or more of the purposes mentioned in s. 8 (5) of the Act. That is so even if the residuary clause be read as referring only to charities existing within the Archbishop's Province, and not as permitting the expenditure on charities controlled by the Church outside Australia as in terms it does. (at p330)

Section 8 (5) does not exempt from duty all moneys which under a will go to charity. It exempts some gifts which may not be charitable in the legal sense; and it does not exempt some that are. It provides that "duty shall not be assessed or payable upon so much of the estate as is devised or bequeathed for religious, scientific or public educational purposes in Australia" or to or for the benefit of certain public institutions or kinds of public institutions in Australia including "a public benevolent institution" and also certain funds established for stated purposes. (at p330)

On 11th April 1963 Matthew Beovich, Roman Catholic Archbishop of Adelaide, executed a deed which, after reciting the terms of the testator's will, reads:

"And whereas the said Matthew Beovich as such Roman Catholic Archbishop of Adelaide aforesaid in exercise of such discretion has elected to expend the said residue as to one half thereof for the benefit of the Goodwood Orphanage situated at Goodwood Road Goodwood in the said State and as to the remaining half thereof for the benefit of the Largs Bay Orphanage situated at 208 Lady Gowrie Drive Largs Bay in the said State Now this deed witnesseth that in consideration of the premises I the said Matthew Beovich hereby declare that I hold the said residue of the estate of the said John Jeremiah O'Donoghue deceased upon trust for the said recited Goodwood Orphanage and the said recited Largs Bay Orphanage in equal shares." (at p331)

It is admitted by the Commissioner that the two orphanages are "public benevolent institutions" within the meaning of s. 8 (5) of the Act. But the question is not how the Archbishop did in fact dispose of the property left to him but how he might lawfully have disposed of it - for the Act requires the assessment to be made as at the testator's death: Grey v. Federal Commissioner of Taxation (1939) 62 CLR, at p 64 Two arguments were submitted on behalf of the appellant in an endeavour to bring the residuary gift in this case within the section. (at p331)

First it was said that, the testator having confided to the Archbishop the power of deciding, as it were on his, the testator's, behalf, how his residuary estate should be applied for the benefit of Catholic Charities, the Archbishop's decision to devote it to the two orphanages meant that the property was bequeathed to them by the will: and that, they being public benevolent institutions within the meaning of the Act (and, it was not disputed, Catholic Charities within the meaning of the will), the property thus bequeathed was exempt. This argument was erected upon the analogy of an appointment under a special power of appointment. There the well-known rule is that, for the purposes of the rule against perpetuities, the perpetuity period starts from the date when the power is created - in the case of a power given by will from the date of the testator's death - not from the date on which it is exercised. The rule is sometimes explained by saying that the appointment is "read back" into the will as if the donee of the power were filling in blanks for the testator. This principle and the somewhat doctrinaire reasoning in some of the authorities as to whether an interest appointed by a special power of appointment should be said to have been acquired under the instrument creating the power or the instrument exercising it were invoked by counsel in an ingenious attempt to read the will as if the testator had bequeathed the residue of his estate to the two orphanages. He referred in particular to Pedley-Smith v. Pedley-Smith (1953) 88 CLR 177 , at pp 190-193 But the analogy on which the argument was founded is unsound. Admittedly a power to select charities as the particular purposes or objects to which a fund devoted to specified forms of charity is to go has some resemblance to a special power of appointment: see e.g. Re Beesty's Will Trusts. (1964)3 WLR 689 ; [1964] 3 All ER 82

But the rules governing special powers of appointment in relation to the rule against perpetuities have really no application or analogy. The short answer to the argument is that a discretion to decide the manner in which a fund devoted to charity shall be spent is, in principle, quite different from a power to appoint property among beneficiaries. A charitable trust is a trust for a purpose not for persons. The trust of residue here took effect as a trust for charity immediately on the death of the testator without awaiting the Archishop's selection of objects: see In re Willis; Shaw v. Willis (1921) 1 Ch 44; Commissioner of Stamp Duties (N.S.W.) v. Way [1952] A.C. 95 ; (1951) 83 C.L.R. 570 . (at p332)

The second argument for the executor was that the gift of residue was made to the Archbishop in the way of his office and not personally and that because of this and the terms of the gift itself and the rest of the will it should be regarded as a gift "for religious purposes in Australia" within the meaning of s. 8 (5) of the Act. I appreciate that some of the pecuniary legacies the testator gave are some indication that he was a faithful adherent of his Church. But it is quite impossible to say that the rest of the will colours in any way the ordinary meaning of the words of the residuary clause. That the residuary bequest to the Archbishop is a gift to the holder of the office for the time being admits of no doubt. If it were expressed simply as a gift to him it would, I shall assume, be taken as made to him in the way of his ecclesiastical office, to be applied for the purposes of his office. If that were the case there would be much substance in the argument that the gift was for religious purposes. But that is not the case. The gift here is to the Archbishop for the purposes that are expressed; and that makes all the difference: see Re Macgregor; Thompson v. Ashton (1932) 32 SR (NSW) 483; 49 WN 179; In re Rumball; Sherlock v. Allan (1956) Ch 105. To quote Lord Macnaghten in Dunne v. Byrne [1912] AC 407

"It is difficult to see on what principle a trust expressed in plain language, whether the words used be sufficient or insufficient to satisfy the requirements of the law, can be modified or limited in its scope by reference to the position or character of the trustee" (1912) AC, at p 410

The testator's language is plain. The Archbishop is to use the bequest for the benefit of Catholic Charities. Therefore it can only be said that the residue is bequeathed for religious purposes if the expenditure of money in whatever way the Archbishop might choose for the benefit of any Catholic Charity that he might select would be fulfilling a religious purpose. That proposition cannot, I think, be sustained.

There are charitable undertakings, schools, orphanages, hospitals, conducted by or connected with the Catholic Church that cannot be said to be religious purposes as that expression is used in law. I fully appreciate that many people in many branches of the Christian Church who dedicate themselves to charitable works do so under the impulse of their religion and its moral teachings. And I do not question that religious faith and teaching have and have had a great part in the promotion of charity. The idea of charity in its general sense, as distinct from its technical sense, owes much no doubt to the influence of religious doctrine. That I do not dispute. And I accept as a fact, without the need to have evidence, that in the daily conduct of many undertakings that would fall within the description "Catholic Charities" religious observances have a considerable place. Charitable and benevolent institutions, such as the two orphanages to which the Archbishop has applied the residue, can I do not doubt be justly regarded as not only performing a task which members of the Church to which the Archbishop belongs and other people of goodwill approve, but as also advancing the cause of the Church. But an activity, even though it be charitable, that tends to the advancement of religion is not necessarily a religious purpose. (at p 333)

The appeal must be dismissed. The executor was justified in seeking the ruling of the Court and as the burden of the duty, 10,500 Pounds, is considerable and it falls upon the residue which goes to the charities I make no order as to the costs of the appeal. (at p333)