Robertson v Federal Commissioner of Taxation

86 CLR 463
1952 - 1218A - HCA

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(Decision by: Kitto J)

Between: Robertson
And: Federal Commissioner of Taxation

Court:

Judges: Williams J

Kitto JTaylor J

Subject References:
Taxation and revenue
Estate duty
Assessment
Shares in company
Valuation
Division of shares
Depression in value of shares

Legislative References:
Estate Duty Assessment Act 1914 No 22 - s 8(4)(e); s 16A(1)(a)

Hearing date: MELBOURNE 27 October 1952; 28 October 1952; 29 October 1952
Judgment date: 18 December 1952

SYDNEY

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Decision by:
Kitto J

KITTO J. Sir MacPherson Robertson died on 20th August 1945, and his estate at his death included a parcel of 561,667 shares in the capital of MacRobertson Pty Ltd  That company, whose share register was in Melbourne, was not listed on the Melbourne Stock Exchange, and its articles of association as they stood at the death of the deceased contained a number of provisions which did not conform with the requirements prescribed by the committee of the Stock Exchange for the purpose of enabling the company to be so listed. The Commissioner of Taxation and the deceased's executors disagreed as to the value which should be attributed to the shares for the purposes of the assessment of estate duty under the provisions of the Estate Duty Assessment Act 1914-1947, and the disagreement has led to this appeal.

The relevant facts are set out in the form of mutual admissions, and from par. 36 of the admissions it appears, as a matter of necessary inference, that the difference between the figure which the executors are willing to accept and the figure for which the commissioner contends represents the difference between the value which ought to be placed on the shares if allowance is to be made for the presence in the articles of a particular set of provisions contained in article 6 and the value which ought to be placed upon them if the articles are to be considered as altered by the deletion of article 6. The shares must, of course, be valued as at the death of the deceased, and article 6 was then in the articles and had been there since 1929. If, then, article 6 is to be treated as nonexistent, it must be because it should be so treated by reason of some provision of the Act.

Before turning to the Act, it is convenient to describe article 6. It is lengthy and its terms need not be set out in full. It is expressed to take effect upon the death of the deceased, and what it does on the happening of that event is to divide the issued shares of the company (which until then are all of one class) into two classes according as they are or are not at that date standing in the name of the deceased on the share register. If they are in his name they become known as No. 2 class shares, and if not they are to be known as No. 1 class shares. Thenceforth the No. 2 class shares carry, with respect both to dividend and to winding-up, rights much less advantageous than those of the No. 1 class shares. The article produces the result that the shares which the deceased chose to retain in his own name until his death, although they continued until then to be saleable by him so as to enjoy the advantages, instead of being subject to the detriment, which the operation of article 6 was designed to produce, would by his death automatically lose a substantial portion of their value, and the value of the shares of other persons would be correspondingly and simultaneously increased. One may surmise that the scheme was devised in order to reduce the liability of the deceased's estate for estate duty, and if the Act had remained as it stood in 1929 the scheme would undoubtedly have succeeded. The commissioner, indeed, contended that par. (e) of s. 8 (4), which was added by the amending Act of 1928, had an operation in this case to prevent that result, but I agree with the reasons which have been given by my learned brethren for rejecting the contention.

The only question to be considered, then, is whether the Act in the circumstances of the case provides for the valuing of the shares as if article 6 were not in the articles. That question must depend upon the true construction of par. (a) of sub-s. (1) of s. 16A, which came into the Act in 1942 and relates to the determination of the value of shares or stock in any company. The sub-section applies only where the commissioner (or any board or court determining the value of shares or stock for the purposes of the Act: sub-s. (2)), is of opinion that it is necessary that the provisions of the various paragraphs of the sub-section should apply "for the purpose of assessing the value for duty of an estate for the purposes of this Act". The purpose by reference to which it must be decided whether it is or is not necessary in a given case to apply these provisions is, therefore, the purpose of ascertaining the true money equivalent of the shares or stock of the estate as at the death of the deceased.

The statement frequently made that a valuation for purposes of estate duty is to be made as at the date of the death is not precise, but it is only in an exceptional case that the lack of precision matters. It is natural enough, and sufficiently accurate in the ordinary run of cases, to speak of "the date of death" in this connection, because it is usually true, and one tends to assume, that the circumstances existing at the death remain constant throughout that day. The tendency is doubtless fostered by the refusal of the law, for many purposes, to pay regard to fractions of a day. A good example of the common tendency to use the expressions "the date of death", "the time of death" and "the death" as if they were interchangeable is provided by article 6 itself: see "upon the death" in par. (i); "at the date of his death" in par. (ii) (twice); "from the date aforesaid" in par. (iii); and "from and after the death" in par. (iv). Section 16A (1) (a) appears to make the very assumption I have mentioned. It directs attention to the question whether the memorandum and articles of association "at the date of death" satisfied the requirements prescribed by the committee of the relevant Stock Exchange for the purpose of enabling the company to be placed on the current official list of that Stock Exchange; and the question whether it is necessary that the provisions should apply in a given case thus becomes a question whether it is possible, without resort to an assumption that the memorandum and articles "at the date of death" satisfied the Stock Exchange requirements, to assess what the shares were really worth at the moment of death.

The executors in this case contend that the question should be answered by saying that there is no necessity to make the assumption, because "at the date of death" the articles, with article 6 in them, in fact satisfied the requirements of the Stock Exchange. The assertion that this was so is based upon a statement in par. 37 of the mutual admissions, that the inclusion of article 6 "would not as from and after the death of (the deceased) have precluded the listing of the company's shares by the Stock Exchange of Melbourne, but its inclusion would have precluded such listing during the lifetime of the deceased". The parties have treated the reference in this admission to precluding the listing of the shares as references to failing to satisfy the requirements prescribed by the committee of the Stock Exchange within the meaning of s. 16A (1) (a); and clearly enough the trouble about article 6 from the stock exchange point of view is that, in the language of the Official List of Requirements which is in evidence, it is "unreasonable in the case of a public company" that the rights which shares confer as regards dividends and winding-up should be dependent upon the uncertain future event of the shares happening to be or not to be registered in the name of a specified living person when he dies. The admission therefore must mean, as indeed is obvious, that the death of the deceased was a condition precedent which had to be fulfilled before the articles, with article 6 in them, could satisfy the requirements of the Stock Exchange. Clearly, it was not until the deceased had died and article 6 had done its work that the company was in a position to go to the committee of the Stock Exchange with an acceptable set of articles. One way in which the executors put their argument is that, that condition being fulfilled by the death, the articles satisfied the Stock Exchange requirements throughout so much of the day of the death as remained after the moment of death, and that therefore they satisfied the requirements "at the date of death". This, however, is not true unless "at the date of death" means at any time on the day of the death; and once it is recognized that the topic to which s. 16A relates is the valuing of shares as at the death, and as at no other time than the death, to give so wide a meaning to the phrase in the section becomes impossible. The intention of the section cannot be that the critical time as at which the necessity for notionally altering the articles must be decided shall be a point of time other than that as at which the valuation has to be made.

But the executors put an alternative argument. They say, in effect, if the expression "at the date of death" does not mean at any time on that date, it must mean either throughout the day of the death or throughout so much of it as is not subsequent to the moment of death; and on either of these interpretations, there cannot be a necessity to make any false assumption in order that the articles may be treated as having satisfied the requirements of the Stock Exchange for the purpose of valuing the shares as at the death, unless it is first found that the articles did not satisfy those requirements at the death. In the present case, the argument proceeds, it was at the moment of death that the transformation provided for by article 6 took place, and therefore it cannot be said that the articles did not at that time satisfy the Stock Exchange requirements.

The answer which the commissioner offers to this contention may be stated as follows. He says: here are shares which at the moment of death answered the description in article 6 of shares standing in the name of the deceased. The parties are agreed that if the valuation is to be made bearing in mind that this was so and also that, as a consequence of the death (an automatic and instantaneous consequence, but still a consequence), these shares suffered a diminution in the rights attached to them, the value of the shares was 14s. 5d. per share. They are also agreed that if the valuation is to be made on the assumption, by the application of s. 16A (1) (a), that article 6 would not produce this result upon the death of the deceased, that is to say that at the moment of death they were not subject to the consequence referred to but were still alienable, as they had always been in the hands of the deceased, for what they would fetch as shares carrying the same rights as the rest of the shares in the company, then their value was 21s. 10d. per share. If the death be regarded, as it must logically be regarded, as having preceded the operation of article 6 to which it was the condition precedent, and therefore to have preceded the achievement of conformity between the articles and the Stock Exchange requirements, then, in order to place upon the shares the value they represented at the death, that is to say, immediately before the consequences of the death had ensued, it is necessary to apply s. 16A (1) (a) and notionally to satisfy the Stock Exchange requirements by deleting article 6. So, the commissioner says, at the death of the deceased his shares were not yet, but they were about to become, No. 2 class shares with diminished rights; that this was so because article 6 had not yet operated, but was about to operate, to effect the radical change which it was designed to produce; and that therefore the discordance between the articles and the requirements of the Stock Exchange (so far as article 6 was concerned) still existed though it was about to disappear. Consequently, the commissioner concludes, the true value which the shares contained until, in consequence of the death of the deceased, they were converted into No. 2 class shares by the operation of article 6, cannot be ascertained without invoking the authority of s. 16A (1) (a) to disregard the existence of article 6, that is to say, to disregard the effect which the impending operation of article 6 had upon the value.

In my opinion the commissioner is quite right in insisting that the conversion of the deceased's shares into No. 2 class shares by the operation of article 6 should be considered as if it were an event subsequent to the death, for the death was a condition precedent to the conversion. On this type of question it is useful to refer to the judgment delivered by Palles C.B., with the concurrence of Kenny J., in In re Augusta Magan ^[F14] . The case was decided in 1908, though not reported until 1922. Under the Finance Act 1894 (Imp.) (57 & 58 Vict. c. 30) the question arose whether certain property was, on the death of Augusta Magan, settled property in the sense that it was "for the time being limited to or in trust for any persons by way of succession". Up to the moment of Augusta Magan's death the property was settled on her for life and then for her issue, but at the moment of her death the possibility of issue ceased, and (under the relevant limitations) no one could take but herself, so that at the moment of her death it ceased to be settled. The question for decision in the case was whether the property should or should not be aggregated with her individual property for duty purposes, and the answer to that question depended upon the further question whether the property should or should not be regarded as having ceased at her death to be settled property. The Court held that the property, though it was settled until Augusta Magan's death, was no longer settled when it passed from her on her death. Palles C.B. said ^[F15] :"Thus arises a question of some nicety: was the property `settled' when it passed from Miss Magan at the moment of her death? I am of opinion that it was not. The two events-death and the passing of property-took place, in point of time, at the moment; but in nature one preceded the other. The passing of the property was the effect of the death; the death was the event upon which it passed, and in nature the event must precede the effect which is to ensue upon it. This is so, not only metaphysically, but it is a recognized principle of our law". After quoting a passage from Viner's Abridgement, and one from Littleton with Coke's comment upon it, his Lordship went on ^[F16] :

"Considering the instant of the death of Miss Magan upon this principle, the instant so far as it was an end of her life must precede in contemplation of law the same instant so far as it was the time at which the estate passed on her death. I am, therefore, of opinion that although the death and the passing of the estate must be regarded as having taken place at the same instant, which for some purposes must be considered in law as `unum indivisibile in tempore', still that indivisibility must be considered to be sub modo only, or, I should prefer to say, is subject to an exception, and at all events is not inconsistent with the termination of her estate preceding the passing of that estate upon her death; that on the termination of her life, and before the passing of the estate upon her death, the possibility of her having issue, and consequently of there being anyone to take in succession to her under the will of her mother, ceased: that the property at the termination of her life ceased to be `settled property' within the meaning of the Finance Act, and consequently was not `settled property' at the time, which must be regarded as subsequent when it passed on her death".

On this principle I am of opinion that the question whether it is necessary in the present case to assume an alteration of the articles of MacRobertson Pty Ltd must be approached on the footing that it was not until after the deceased had died that the articles (so far as article 6 was concerned) were satisfactory to the Stock Exchange. This is in precise accordance with the statement in par. 37 of the mutual admissions that it was "as from and after the death" that the inclusion of article 6 would no longer have precluded the listing of the company's shares on the Melbourne Stock Exchange; and it treats the further statement that the inclusion of article 6 would have precluded such listing "during the lifetime of the deceased" as necessarily meaning "until he had died".

But to say this is not to say that the commissioner must succeed. It only makes it essential to decide whether the valuation to be made, which is of course a valuation as at the instant of death, must be made as if the instantaneous consequence of the death in relation to the shares had yet to take place. If it is to be so made, there may indeed be a necessity to invoke s. 16A (1) (a), in order to justify attributing to the shares the full value which they had as shares capable of alienation so as to escape conversion into No. 2 class shares, and taking no account of the depressing effect of their imminent conversion by the operation of article 6. The answer, I think, is that the very method of reasoning which Magan's Case ^[F17] supports requires the conclusion that the application of the Estate Duty Assessment Act itself to the particular case is a consequence of, and therefore is logically to be treated as subsequent to, the death of the deceased. It is not until there is an estate of a deceased person that the Act speaks. It follows that in the present case the estate must be valued as at the death, but on the hypothesis that the deceased has died. In valuing the shares on that hypothesis there cannot be a necessity to apply s. 16A (1) (a) in order notionally to alter the articles in relation to article 6, for it is involved in the hypothesis itself that article 6 no longer presents any obstacle to listing. At no time while article 6 prevented listing did the Act require the shares to be valued. It was only when they had acquired the character of assets of a deceased person's estate that it became necessary to value them. As such, they were shares in a company whose articles no longer contained anything, so far as article 6 was concerned, which precluded listing; and as such they were No. 2 class shares worth 7s. 5d. each less than the amount they would have been worth if all the shares of the company had still been of one class, viz., 21s. 10d. If, therefore, the shares were to be valued as at the death on the assumption that in all respects the articles conformed with Stock Exchange requirements, the assumption would involve no alteration of article 6, and no notional restoration of the No. 2 class shares to a position of equality with the No. 1 class shares, and accordingly the answer would still be that the shares were worth 14s. 5d. In the circumstances it cannot be said that there is any necessity to apply s. 16A (1) (a) in order to value the shares as at the death of the deceased.

I agree that the appeal should be allowed.