The Perpetual Executors and Trustees Association of Aust. Ltd. & Anor. v. Commissioner of Probate Duties (Vic.).

Judges:
Brooking J

Court:
Supreme Court of Victoria

Judgment date: Judgment handed down 31 July 1980.

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Brooking J.

This is an appeal pursuant to sec. 19 of the Probate Duty Act 1962 by the executors of the will of David McKellar Rutherford Guthrie deceased against the disallowance of an objection against an assessment of probate duty, notice of which was issued on 25 February 1975. The executors had claimed a rebate of duty under sec. 24 of the Act, which section is concerned with land used for primary production and related stock and plant. In making his assessment the Commissioner refused to allow the rebate, and in or about April 1975 the executors lodged an objection against the assessment. By a slip the objection lodged related only to land, not to stock and plant.

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By notice dated 24 December 1976 the Commissioner disallowed the objection. On 9 September 1977 the executors delivered to the Commissioner a notice of objection containing amendments which purported to extend the objection so as to make it embrace stock and plant in addition to land.

The testator died on 2 May 1973 leaving a will dated 17 August 1967 and two codicils dated respectively 22 August 1968 and 5 March 1971. Probate was granted of the will and codicils on 16 August 1973. By his will the testator devised and bequeathed his whole estate to his trustees on trust, subject to the provisions of the will, for sale and conversion into money and payment of debts, funeral and testamentary expenses and duties and on trust to pay the income from the residuary estate to his mother during her lifetime and after her death to his father during his lifetime. The effect of the second codicil is that after the death of the testator's parents his godson is entitled to his residuary estate.

By deed dated 22 June 1953 and made between Rutherford Campbell Guthrie (the father of the testator), Thomas Peter Rutherford Campbell Guthrie (the testator's brother, whom I shall call ``the brother'') and the testator the parties agreed to carry on business in partnership as pastoralists and graziers for a term of three years from 1 July 1953 under the name ``Warrawidgee Pastoral Company''. Clause 16 of that deed gave the surviving partners the option of purchasing the share of a deceased partner. Upon the expiration of the three-year term no further written partnership agreement was entered into, but the partners continued to carry on the partnership business. By deed dated 6 July 1961 and made between the three partners it was agreed that the partnership between them should be deemed to have been dissolved as from 1 July 1961 and that the business should as from 1 July 1961 be carried on by the testator and the brother as the continuing partners. By cl. 6 of that deed they were to continue as partners until 30 June 1964 upon the terms and conditions so far as applicable of the deed of 22 June 1953, subject to certain modifications. After 30 June 1964 no further written agreement was entered into between the testator and the brother, but they treated the partnership as continuing upon the terms of the two deeds so far as applicable.

At the date of death of the testator he and the brother were the owners as tenants in common in equal shares of 3,972 acres or thereabouts of land, being about two-thirds of the total acreage used by the partnership. This land had been purchased by them from their father, who remained the owner of the balance of the 6,000 acres used by the partnership. I am satisfied that the 3,972 acres of land of which the testator and the brother were tenants in common was at the date of death of the testator part of the property of the partnership which subsisted between them. At the date of death the partnership assets comprised the 3,972 acres of land, valued at $375,640, livestock and plant, valued at $240,343 and $17,746 respectively and other assets (notably shares in companies, debentures and cash at bank) valued at $268,827. Those are the values that were put upon the assets by the executors and accepted by the Commissioner. The liabilities of the partnership were insignificant.

Clause 7 of the testator's will was in the following terms:

``7. My brother PETER RUTHERFORD CAMPBELL GUTHRIE shall have the option of purchasing my interest in the partnership business at present carried on by my said brother and myself on the property known as `Warrawidgee' Linton in Victoria under the name of the `Warrawidgee Pastoral Company' and/or any farming or grazing lands or any interest therein which I may own at my death at the value at which same are passed for the purpose of the assessment of Victorian Probate Duty on my estate. I Direct my trustees to offer my brother terms of payment of the purchase money extending over such a period of time as they shall think reasonable in the circumstances. In the event of my brother failing to notify my trustees in writing within six months of being advised of the price at which he is at liberty to purchase any such asset that he wishes to purchase same then the offer to purchase that particular asset shall be deemed to be refused and my trustees shall be free to sell the same to any other person on any terms.''

The trustees instructed their solicitors that they had valued the testator's interest in the partnership at $441,926.37 in the return filed

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for probate duty purposes and that if that figure was accepted by the Commissioner they would be willing to sell the testator's interest in the partnership to the brother at that figure upon the footing that the brother would pay by way of deposit such amount as was necessary to enable the trustees to pay the then net current liabilities of the estate (including State and Federal duties), which were then estimated not to exceed $220,000, would pay the balance at the rate of $20,000 per annum until 1 July 1981, on which date the balance would become due and payable, with interest at not less than 5 per cent per annum and would execute a mortgage over the land owned by the partnership to secure payment of the balance. Having been informed of these proposals, the brother on 25 March 1974 gave written notice of exercise of option as follows:

``To:

Sir Rutherford Campbell Guthrie and The Perpetual Executors and Trustees Association of Australia Limited

I, THOMAS PETER RUTHERFORD GUTHRIE of `Warrawidgee' Linton in Victoria Grazier HEREBY GIVE you notice as Trustees of the Will of David McKellar Rutherford Guthrie late of `Warrawidgee' Linton in Victoria Grazier deceased that I exercise the option given to me by Clause 7 of the said David McKellar Rutherford Guthrie to purchase his share and interest in the partnership business of `Warrawidgee Pastoral Company' and in the freehold land at Warrawidgee upon which the same is conducted, as at the First day of July One thousand nine hundred and seventy-three.

DATED this 25th day of March 1974.

T.P.R. GUTHRIE''

In due course the testator's interest in the land was conveyed or transferred to the brother. After the notice of exercise trustees and the brother treated the brother as sole owner of the other partnership property as from 1 July 1973.

Clause 7 of the will gives the option of purchasing the testator's interest in the partnership business ``and/or any farming or grazing lands or any interest therein which I may own at my death''. By the notice of 25 March 1974 the brother exercised ``the option given to me by Clause 7... to purchase his share and interest in the partnership business of `Warrawidgee Pastoral Company' and in the freehold land at Warrawidgee upon which the same is conducted''. As I have said, I am satisfied that at the time of the testator's death the 3,972 acres of land owned by the brothers was partnership property. In my opinion the exercise of option took effect simply as an exercise of the option given by the will to purchase the testator's interest in the partnership business, the land in question being partnership property. The objection lodged by the appellants with the Commissioner in about April 1975 referred to the ownership of the land by the testator and the brother as tenants in common in equal shares. It went on to refer to cl. 7 of the will and to the exercise of option, but did not assert that the land was partnership property. The notice of objection delivered on 9 September 1977 (containing amendments which purported to extend the objection to stock and plant) referred to the partnership and asserted that the stock and plant formed part of the assets of the partnership business carried on by the brothers, but did not go on to assert that the land was partnership property.

The primary contention of the appellants on the hearing of the appeal was that the land in question was partnership property and that the exercise of option extended to the testator's interest in the land by virtue of the fact that the land was partnership property. The Commissioner has not contended that the appellants should, having regard to the terms of the objection lodged by them, be confined to a case that the testator's interest in the land passed by virtue of an exercise of the option to purchase his interest in farming or grazing lands; the only question raised by the Commissioner with regard to the appellants' contention that the land was partnership property was the question of the sufficiency of the evidence before the Court to establish that fact. Moreover, the Commissioner has, notwithstanding that the objection lodged relates only to land, been content to argue the appeal in relation to stock and plant also. The Taxation Appeals Act 1972 (No. 8274), Pt. II, which substituted sec. 19-19F for sec. 19 and 19A of the Probate Duty Act 1962, did not come into operation until 1 September 1978 and

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sec. 28 of the Taxation Appeals Act 1972 accordingly has the result that this appeal is governed by sec. 19 of the Probate Duty Act 1962 as in force before that substitution. The result of sec. 19(7) is that unless the Court otherwise orders the appellants are upon the hearing of this appeal limited to the grounds stated in the objection lodged in or about April 1975. The Commissioner has, very fairly, not opposed the making of the ``order otherwise'' sought by the appellants, and the appeal has been argued upon the footing that such an order will be made.

Section 24(1) contains a number of definitions and sec. 24(2) provides that relatives of the deceased of certain classes (whom I shall for brevity call ``relations'') shall for the purposes of the section be deemed to be related by blood or marriage to the deceased; brothers are included. The section continues:

``(3) Subject to the provisions of this section a rebate of duty of the prescribed amount shall be allowed in respect of duty which is attributable or is deemed to be attributable to the value of property which is -

• (a) land used for primary production;
• (b) stock and plant; or
• (c) that part of the value of the shares in a primary producer's company which is deemed to be attributable to land used for primary production and stock and plant.

(4) The prescribed amount of rebate shall be 50 per centum of the amount of duty attributable to or which is deemed to be attributable to the value of the property referred to in sub-section (3).

(5) For the purposes of this section the value that is or is to be deemed attributable to -

• (a) land used for primary production; and
• (b) stock and plant -
  • (i) is, in the case of an interest in a partnership which forms or is deemed to form part of the estate of the deceased, the same proportion of the value of the interest of the deceased in the partnership as the gross value of the land used for primary production and the stock and plant that is included in the assets of the partnership bears to the gross value of the total assets of the partnership; and
  • (ii) is, in the case of shares in a primary producer's company which form or are deemed to form part of the estate of the deceased, the same proportion of the value of such shares calculated in accordance with sub-section (8) as the gross value of the land used for primary production by the company and the stock and plant bears to the gross value of the total assets of the company.

(6)...

(7) No rebate shall be allowed under this section unless the Commissioner is satisfied that the property in respect of which the application for rebate is made -

• (a) forms or is deemed to form part of the estate of the deceased person for the purposes of this Act;
• (b) passes or is deemed to have passed to a person who is related by blood or marriage to the deceased; and
• (c) is or relates to land used for primary production.

(7A) For the purposes of paragraph (b) of sub-section (7) property shall be deemed to have passed to a person who is related by blood or marriage to the deceased if the Commissioner is satisfied that the property is likely to pass to such a person.

(8)...

(9)...''

As originally enacted in the Probate Duty Act 1962, sec. 24, by virtue of the definition which it contained in subsec. (1) of ``land used for primary production'', in terms did not apply to an interest in land held by the deceased as a member of a partnership. Having regard to the terms of subsec. (5), sec. 24 as now (and at the material time) in force plainly if somewhat inartificially evinces an intention to comprehend land used for primary production, stock and plant which forms part of the property of a partnership, an interest in which forms or is

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deemed to form part of the estate of the deceased. The section feels somewhat uncomfortable when called upon to accommodate itself to partnership property, but is able to cope. Subsection (3) does not make special provision with regard to partnership property by creating a fourth category of property, namely, ``property which is... that part of the value of an interest in a partnership which is deemed to be attributable to land used for primary production and stock and plant''. Having regard to the deeming provisions of subsec. (5), this omission is surprising, notwithstanding the definition of ``property'' in sec. 4(1) and the contrast between the position of a shareholder in relation to the company's assets (
Macaura v. Northern Assurance Co. Ltd. (1925) A.C. 619) and the position of the personal representatives of a deceased partner in relation to the firm's assets (
Trustees Executors and Agency Co. Ltd. v. F.C. of T. (1944) 69 C.L.R. 270 at p. 285 per Rich J. and pp. 295-6 per Williams J.;
Perpetual Executors and Trustees Association of Australia Ltd. v. F.C. of T. (1954) A.C. 114;
Burdett-Coutts v. I.R. Commrs. (1960) 1 W.L.R. 1027).

Section 24(7) requires the Commissioner to be satisfied of three matters concerning ``the property in respect of which the application for rebate is made''. Where the deceased was in partnership, is this the ``interest in a partnership which forms or is deemed to form part of the estate of the deceased'', to use the language of subsec. (5)? A second possible view is that it is the physical assets - the land, stock and plant - and a third possible view is that it is the interest of the deceased or his personal representatives in those physical assets. The second possible view can be rejected at the outset, since the physical assets of a partnership can never be said to form part of the estate of the deceased (para. (a)) or to pass or be deemed to have passed to a relation (para. (b)). After some hesitation, I have concluded that ``the property in respect of which the application for rebate is made'', within the meaning of subsec. (7), is, in the case of a partnership, the ``interest in a partnership which forms or is deemed to form part of the estate of the deceased'' as mentioned in para. (i) of subsec. (5), not the interest of the deceased or his personal representatives in the land, stock and plant which is included in the assets of that partnership.

By para. (c) of subsec. (7), the Commissioner must be satisfied that the property in respect of which the application for probate is made ``is or relates to land used for primary production''. Where the property in respect of which the application for rebate is made is an interest in a partnership, the inquiry for the purposes of this paragraph will be whether the property ``relates to'' land used for primary production. This appears to have been the view taken by Menhennitt J. in
Re Campbell (1968) V.R. 46 at p. 50 (although at p. 54 his Honour referred only to primary producer's companies when making a further passing reference to para. (c)).

Section 24(7) makes it a condition of the allowance of a rebate under the section, not that the state of affairs mentioned in para. (a), (b) and (c) in subsec. (7) should exist, but that the Commissioner should be satisfied that it exists, a circumstance adverted to by Menhennitt J. in Re Campbell, supra, at p. 59. The Commissioner has conducted this appeal upon the basis that if the Court is of opinion that the state of affairs mentioned in para. (a), (b) and (c) exists the appeal should be allowed and I therefore find it unnecessary to form any view concerning the conjoint operation of sec. 19 and sec. 24(7).

The deed of partnership of 22 June 1953 by cl. 16 confers an option to purchase the share of a deceased partner upon the survivors, such option to be exercised within six months of the grant of probate or letters of administration. Assuming that this provision was made applicable by cl. 6 of the deed of 6 July 1961, it is clear that the notice of exercise was not given pursuant to the partnership agreement; nor did Mr. Ahearne contend otherwise. The notice was given more than six months after the grant of probate, and the reference to cl. 7 in the notice makes it clear enough that the option being exercised is that given by the will.

Two further observations should be made concerning the notice of exercise of option. In the first place, the notice refers to ``the option given to me by cl. 7 of the said David McKellar Rutherford Guthrie''. Mr. Chernov invited me to apply the clerical errors rule of construction so as to read into

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the notice the words ``of the will'' after the expression ``Clause 7''. This I am willing to do; Mr. Ahearne did not submit that I should not. In the second place, the notice purports to exercise the option to purchase the interest in the partnership and land ``as at the First day of July, One thousand nine hundred and seventy-three''. Mr. Ahearne's argument has proceeded upon the basis that the notice was effective to exercise the testamentary option. He has not submitted that the notice of exercise was in any respect defective or that its terms were such as to travel outside the testamentary option and amount to an offer which was accepted by the trustees or to the acceptance of an offer made by the trustees so as to give rise to a contract of sale. In these circumstances I have not thought it appropriate to consider for myself the effect of the reference to 1 July 1973 in the notice but have proceeded upon the basis that the Commissioner accepts that the notice was an effective exercise of the testamentary option and that it was nothing more than an exercise of that option. I therefore find it unnecessary to consider
Levy v. Brady (1953) 56 W.A.L.R. 31 insofar as that case is concerned with the distinction between the share of a deceased partner at the date of death and the share at the date when the exercise of option became effective.

The option conferred by the testator's will is in terms an option to purchase. The testator did not by his will leave the property in question to his brother conditionally on the brother's paying a sum (to be ascertained in a stated manner) either to the executors or to some beneficiary. Nor does the option clause take the unusual form to be found in the will which fell for consideration in
McKendrick v. Lewis (1889) 15 V.L.R. 450, where the testator granted an option to pay the executor a specified sum and take two cottages, in which case he devised the cottages to the optionee. The present disposition does not in terms direct the trustees to propose a contract of sale to the testator's brother. (Compare the distinctions drawn by Dixon J. in
O'Neill v. O'Connell (1946) 72 C.L.R. 101 at pp. 119-120.) The disposition is not, however, cast simply in the form of an option to purchase. It begins by providing that the brother shall have the option of purchasing at a given value. There follows a direction to the trustees to offer the brother terms of payments of the purchase money extending over such a period of time as they think reasonable. The clause continues:

``In the event of my brother failing to notify my trustees in writing within six months of being advised of the price at which he is at liberty to purchase any such asset that he wishes to purchase same then the offer to purchase that particular asset shall be deemed to be refused and my trustees shall be free to sell the same to any other person on any terms.''

The words ``offer to purchase'' cannot be read literally but must be given some such meaning as ``option to purchase'', or ``offer to sell'', or ``offer of the right to purchase''.

Clause 7 is of doubtful meaning. It must, I think, be taken as by implication directing the trustees to advise the brother of the price or prices at which he is at liberty to purchase the asset or assets, being the value or values accepted for probate duty purposes. There is an express direction to the trustees to offer the brother terms of payment of the purchase money, but the will is silent as to when this is to be done. The terms of payment available may well affect the decision whether to exercise the option, and I would construe the will as requiring the trustees by implication to make the offer of terms of payment by the time when they advise the brother of the price at which he is at liberty to purchase, so that he will have the full period of six months mentioned in cl. 7 in which to make an informed decision. Compare
Talbot v. Talbot (1968) Ch. 1.

The question arises whether the ``offer to purchase'' which by the concluding words of cl. 7 is to be deemed to be refused if the option to purchase is not exercised within the six month period (and which must, as I have said, be read as ``option to purchase'') or ``offer to sell'' or ``offer of the right to purchase'' is an option or offer which the testator regards himself as granting or making by the operation of cl. 7 or an offer which the testator regards his trustees as making pursuant to that clause. I consider that the former is the correct view, that is to say, that the testator regards the ``option to purchase'' or ``offer to sell'' as granted or made by his will and regards his trustees as notifying terms to the optionee. In reaching

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this conclusion I am influenced by the fact that the will does not expressly direct the trustees to make an offer to the brother to sell the property in question; the only directions are an express direction to offer terms of payments and an implied direction to advise of the price at which the brother is at liberty to purchase.

I do not regard cl. 7 as directing the trustees to propose a contract of sale to the brother; rather are they to notify the brother of the terms upon which he is entitled to purchase pursuant to the will in the events that have happened (those events being the passing of the property at a certain value for probate duty purposes and the determination by the trustees of the terms of payment). It is therefore unnecessary for me to determine whether the requirement of para. (b) of sec. 24(7) is met if a relation accepts the proposal of an executor or trustee, made pursuant to a direction contained in the will, that a contract of sale be made. I should add that Mr. Ahearne did not submit that cl. 7 of the will contemplated that the trustees should propose a contract of sale to the brother and that he should exercise the option to purchase by accepting that proposal so as to conclude a contract of sale.

Not only an option to purchase at an undervalue given by will (
Re Busby (1930) S.R. (N.S.W.) 399) but also an option to purchase at market value so given contains an element of bounty. (In
Re Fison's Will Trusts (1950) Ch. 394 at pp. 404-5;
Cox v. Archer (1964) 110 C.L.R. 1 at p. 5.)

It has been said that a testamentary option to purchase property is not a devise or bequest of property (
Sharp v. The Union Trustee Co. of Australia Ltd. (1944) 69 C.L.R. 539 at p. 557 per Williams J.). On the other hand, a testamentary option to purchase land has been described as in the nature of a conditional gift and as an executory devise (
Oliver v. Oliver (1958) 99 C.L.R. 20 at p. 26 per McTiernan J.) and the grant of an option to take specific property, including real estate, in satisfaction of a share of residue has been held to be equivalent to a specific devise of the equitable fee in that real estate (
Re Jolly (1901) 17 T.L.R. 244, doubted in
Re Lander (1951) Ch. 546 at p. 552). Eve J. appears to have been of opinion that one who acquired land by reason of a testamentary option could properly be described as taking under the will (
Re Cockerill (1929) 2 Ch. 131 at p. 134).

In England the opinion has been expressed that upon the exercise of a testamentary option to purchase a contract of sale comes into existence. (In
Re Eve (1956) Ch. 479 at p. 482;
Re Harmsworth (1967) Ch. 826 at pp. 832, 851 and 855;
Talbot v. Talbot (1968) Ch. 1 at p. 10; compare Pritchard (1974) 38 Conveyancer and Property Lawyer 8 at pp. 18-19.) In Australia this view has been rejected, it having been authoritatively laid down that the exercise of such an option does not itself give rise to any contract, the rights of the executors and the beneficiary exercising the option arising not from contract but from the provisions of the will and the operation of the doctrines of equity upon those provisions (O'Neill v. O'Connell (1946) 72 C.L.R. 101).

The position of the grantee of a testamentary option to purchase land has been considered for the purposes of Locke King's Act (the Real Estate Charges Act 1854, 17 and 18 Vic. c. 113; see now Administration and Probate Act 1958, sec. 40). The object of this legislation, first enacted in Victoria as sec. 150 of the Real Property Statute 1864 (27 Vic. No. 213), was to subject the real estate of the testator to all the encumbrances upon it in exoneration of the personal estate. (In
the Will of Smith (1909) V.L.R. 91 at p. 94; Carson's Real Property Statutes 2nd ed. pp. 433-9.) In
Givan v. Massey (1892) 31 L.R. Ir. 126 and
Re Wilson (1908) 1 Ch. 839 a person exercising a testamentary option to purchase at a fixed price land which was subject to a mortgage was held not to be a ``devisee'' within the meaning of Locke King's Act and accordingly was held to be entitled to a conveyance free from encumbrances. These two decisions were followed in Re Fison's Will Trusts (1950) Ch. 394. Earlier they had been distinguished in
Buhlmann v. Nilsson (1921) 29 C.L.R. 417, where legislation corresponding to Locke King's Act was held applicable to gifts by will of specified real estate subject to payment by the donees of a sum of money to the trustees, in that the donees were persons ``becoming beneficially entitled to such land... through or under the deceased person'' within the meaning of the

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section. One member of the Court, Higgins J., at pp. 423-4 left open the question of the correctness of the two distinguished decisions.

In Re Wilson, supra, there was a gift by will of the whole estate to trustees upon trust for sale and a codicil directing them ``to allow'' the testator's son ``the option of purchasing'' certain freeholds at a stated price. At p. 843 Warrington J. had this to say of the codicil -

``Reading that power in connection with the trust for sale and conversion which is given to the trustees, the trustees, having that power to sell to any one they please, are bound in the first place to offer this property to the son. If he desires to have it and if he exercises his option, in my opinion he elects to become a purchaser and must be taken to have made an offer to the trustees which they are bound to accept and must be taken to have accepted. If they do not expressly accept it, it will be taken by intendment of law that they have done so as if it was their duty to do so. Thus it will be inferred from the facts that there is a contract by the trustees to sell and by the son to purchase the houses.''

Whatever the position may be where the testator in terms directs his trustees to propose a contract of sale to a specified person, a situation envisaged by Dixon J. in O'Neill v. O'Connell (1946) 72 C.L.R. 101 at pp. 119-120 and one concerning which I express no opinion, I am not prepared, on the authority of the observations of Warrington J. set out above, to hold that in the present case a contract of sale arose upon the exercise of the option. It may be possible to distinguish Re Wilson as an example of a direction to the trustees to propose a contract of sale. In my opinion the judgments of the Full High Court in O'Neill v. O'Connell, supra, make it impossible to regard the observations of Warrington J. as correctly stating the effect of the exercise of the option with which I am concerned, to the extent to which those observations suggest that a contract of sale arises upon the exercise of the option.

In the case last cited O'Connell by his will gave all his property to his trustees upon trust to sell the same and to stand possessed of the proceeds upon the trusts declared in the will. By a codicil he gave to O'Neill ``an option to purchase the freehold of the premises of the said business at £6,500 for which my executors may allow terms the option to be exercised within twelve months of my death''. The High Court was concerned with the effect, if any, upon the exercise of that option of the National Security (Economic Organization) Regulations, which prohibited certain transactions relating to land without the Treasurer's consent. The Court gave consideration to the nature of a testamentary option and the effect of its exercise. Latham C.J., at p. 106, was of opinion that an option by will to purchase property does not in itself and independently of its exercise give an equitable interest in that property, and that if the option is exercised and if in proper course of administration the executors can and do make a contract of sale to the optionee, the latter will then under that contract obtain an equitable interest in the property. On appeal, the Full Court took a different view. I resist the temptation to quote at length from the judgments on appeal and content myself with stating some of the propositions which may be derived from those judgments and the decisions there referred to:

1. The donee of a testamentary option to purchase property takes on the testator's death an immediate equitable interest in that property, whether it be real or personal, (See further Cox v. Archer (1964) 110 C.L.R. 1 at p. 5.)

2. By exercising the option the donee becomes obliged to perform the condition upon which, under the provisions of the will, he becomes entitled to the property. This obligation is not contractual but equitable.

3. By exercising the option the donee becomes absolutely entitled to acquire the property except insofar as the will makes payment of the price or performance of any other obligation an essential condition and except insofar as the executors may find it necessary to exercise their overriding power to sell the property to pay funeral and testamentary expenses, death duties and debts. The obligation of the executors to transfer the property to the donee arises not from contract but from the operation of the doctrines of equity upon the provisions of the will. The exercise of the option does not give rise to any contract between the

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executors and the donee, although they may in fact in a particular case subsequently enter into a contract.

4. Even if the property is sold for the payment of the testator's debts the donee may exercise the option and follow the proceeds of sale in the hands of the executors so as to obtain the benefit of any surplus. See
Re Cant's Estate (1859) 4 De G. & J. 503; 45 E.R. 196;
Re Kerry (1889) W.N. 3; in
Re Armstrong's Will Trusts (1943) Ch. 400; Re Fison's Will Trusts (1950) Ch. 394. (The observations of Roxburgh J. in Re Eve (1956) Ch. 479 at p. 483 concerning total destruction of the benefit of the option should not be read as preventing the optionee from having resort to a surplus, as in Re Kerry, supra.)

Menhennitt J. found himself able to decide Re Campbell (1968) V.R. 46 without venturing upon a definition of the expression ``passes'' in para. (b) of sec. 24(7). Neither counsel in argument before me essayed the task of constructing a definition. Mr. Ahearne submitted that there was no passing of the interest in the partnership because that interest did not ``change hands'' by virtue only of the testamentary disposition but by virtue of that disposition coupled with the brother's election to exercise the option. I reject this submission. In my view the optionee's exercise of his option stands in the same position for present purposes as the determination by any beneficiary of his election to accept or disclaim a gift by will. Where a gift by will is made subject to a condition (for example, the payment of money), the donee, by accepting the gift, incurs an equitable obligation to perform the condition:
Countess of Bective v. F.C. of T. (1932) 47 C.L.R. 417 at pp. 418-9, where Dixon J. cited
Attorney-General v. Wax Chandlers Co. (1873) L.R. 6 H.L. 1 at p. 19 and
Messenger v. Andrews (1828) 4 Russ. 478; 38 E.R. 885. In O'Neill v. O'Connell, supra, at p. 120 his Honour cited the same two authorities and equated the position of an optionee to that of the donee of a gift upon a condition.

Like the donee of an option to purchase, any beneficiary under a will has an option to accept or renounce the gift made to him. The principle is commonly illustrated by cases which concern the disclaimer of gifts which are onerous, whether by reason of the conditions attached to them by the testator or by reason of other circumstances, like encumbrances and dilapidations, as in Re Hotchkys (1886) 32 Ch. D. 408. The principle applies, however, to all gifts by will. ``The law certainly is not so absurd as to force a man to take an estate against his will,'' as Abbott C.J. said in
Townson v. Tickell (1819) 3 B. & Ald. 31 at p. 36; 106 E.R. 575.

Generally reference may be made to Williams & Mortimer on Executors, Administrators and Probate pp. 741-2 and 778-9; Williams on Wills, 4th ed., pp. 256-8; Halsbury, 3rd ed., vol. 39 pp. 931-934. The donee of a testamentary gift has an election, but, except in the case of an option to purchase or some other disposition by which the testator requires some act on the part of the donee by way of accepting the gift, the donee will be taken to accept the gift until the contrary is proved (Townson v. Tickell, supra, at pp. 37-8 per Bayley J. and p. 38 per Holroyd J.;
Re Parsons (1943) Ch. 12 at p. 17;
Re Stratton's Disclaimer (1956) Ch. 42 at pp. 51 and 54). It is to be noted that Halsbury 3rd ed. vol. 39 p. 932 note (f) treats options to purchase as merely an example of gifts where the will puts upon the donee the duty of doing some act to show his election to accept, so that acceptance will not be presumed. The senior contributors of that title in Halsbury are Upjohn L.J. and Wilberforce J., as their Lordships then were. It is also of interest that a legatee to whom a gift of consols was made has been described as ``in the position that if he chose not to disclaim his legacy the legacy would come to him out of the mass'' and as ``in a position not unlike that of a person with a binding option'' (Re Parsons (1943) Ch. 12 at p. 17, cited in Re Stratton's Disclaimer, supra, at p. 54). The election given to the donee of a testamentary option to purchase may also be compared with a right of selection conferred by will upon the donee personally, where nothing will pass to him until he elects (
Jaques v. Chambers (1846) 2 Coll. 435; 63 E.R. 803;
Duckmanton v. Duckmanton (1860) 5 H. & N. 219; 157 E.R. 1165;
Re Madge (1929) 44 T.L.R. 372;
Re Knapton (1941) Ch. 428).

Mr. Ahearne further submitted that the scheme of the Probate Duty Act 1962 is to

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ATC 4011

require a rebate of duty to be allowed only where land used for primary production or stock and plant, or a partnership interest or company shares as mentioned in sec. 24, are given by way of bounty to a relation of the deceased, and that property should not be regarded as ``passing'' where the recipient is, by the operation of the will and sec. 17 of the Act, required to pay the market value of the deceased's interest in the partnership. His argument has, however, failed to persuade me that the expression ``passes or is deemed to have passed'' in para. (b) of sec. 24(7) should be read down so as to confine it either to cases of what I might call pure benefaction or alternatively to cases where the beneficiary is required to furnish either no or an inadequate ``consideration''. In my opinion where there is a disposition by will, property may ``pass'' within the meaning of para. (b) whether the disposition is by way of unconditional gift, or by way of gift subject to a condition requiring the donee to incur some detriment (be it a detriment of a value that is less than or equals or exceeds the value of the property given), or by way of option to purchase. I see no difference, for present purposes, between the grant to the brother of an option to purchase at the probate valuation and a gift to the brother upon condition that he pay to the executors, or to the residuary beneficiary, a specified sum (small or large) or the amount of the probate valuation of the property given.

In the result I have concluded that upon the exercise of the option to purchase by the giving of the notice dated 25 March 1974 the interest in the partnership which formed part of the estate of the deceased passed to the brother within the meaning of para. (b) of sec. 24(7), since by giving that notice the brother determined his election to take the property in question under the will upon the terms laid down in the will. Once the notice was given the brother became entitled to the property in question subject to paying the purchase money and that entitlement arose from the terms of the will. I find it unnecessary, and consider it undesirable, to attempt to define ``pass'' for the purposes of sec. 24(7). I am persuaded that, whatever else the expression may comprehend, it includes what took place in the present case.

The appeal succeeds.

[After discussion with Counsel his Honour made the following order.]

It is ordered pursuant to sec. 19(7) of the Act that the appellants be not limited to the grounds stated in their objection, to the intent that they may contend that the assessment was excessive by reason of the failure of the Commissioner to allow a rebate in respect of duty which is attributable, or is deemed to be attributable, to the value of land used for primary production or stock and plant.

The appeal is allowed. I reserve liberty to the appellants to apply for an order reducing the assessment to the amount which is appropriate having regard to my decision.

It is ordered that the respondent pay nine-tenths of the appellants' taxed costs of the appeal, including the costs of the notice of objection and the further and better particulars thereof, and including costs reserved.