Reid, Re
Hill (Appellant) v. York****re & Canadian Trust Limited (Respondent)
(sub nom. Hill v. York****re & Canadian Trust Ltd.), [1971] 2 W.W.R.
12, (1970) 17 D.L.R. 3d 1991, 1970 CarswellBC 75
British Columbia Court of Appeal
McFarlane, Branca and Robertson JJ.A.
Judgment: December 9, 1970
Counsel: W. Esson, for appellant.
C. C. Locke, Q.C., for respondent.
Subject: Estates and Trusts
Trusts and Trustees --- Compensation to trustees -- Indemnification.
Trusts and trustees -- Trustee paying estate duty under compulsion of
law -- Right to indemnity.
Respondent was an English company which also did business in British
Columbia; it was the trustee for a testatrix who died domiciled in
England leaving property there and in British Columbia. United Kingdom
estate duty was *****sed in an amount which exceeded the value of the
assets in England and the respondent was, by English law, accountable
personally for the full amount of the duty. In response to a demand
made upon it by the Estate Duty Office in England it paid the duty, as
it was bound to do. An application by the cestui que trust to the
British Columbia Court for an order that the respondent distribute the
remainder of the estate without making any deduction from the assets
in British Columbia in respect of the taxes claimed by the United
Kingdom Government was dismissed.
It was held that the appeal must be dismissed; the authorities were
clear that the respondent was entitled to be indemnified out of the
estate and any part thereof against the estate duties it had had to
pay unless the appellant could show some good reason why his trustee
should bear them: Hardoon v. Belilios , [1901] A.C. 118 applied.
This was not a case to which the principle enunciated in United States
of America v. Harden, [1963] S.C.R. 366, 44 W.W.R. 630, 41 D.L.R. (2d)
721, affirming (1962), 40 W.W.R. 428, 36 D.L.R. (2d) 602, applied
since it could not be shown that a foreign government was seeking to
enforce through the courts of this province taxes due to it. The
appellant had failed to show any good reason why his trustee should
pay the taxes in question and his appeal must be dismissed.
The judgment of the Court was delivered by Robertson J.A.:
1 This appeal is against the dismissal of a motion:
THAT the York****re & Canadian Trust Limited, the Trustee herein, do
forthwith distribute the rest and residue of the Estate of the said
Dame Georgina Reid, deceased, in accordance with the terms of the Will
of the said deceased, without making any deduction from the assets
situate in British Columbia in respect of estate taxes claimed by the
United Kingdom National Revenue Department.
2 Dame Georgina ("the testatrix") died in December 1919, domiciled
in England and leaving property in both the United Kingdom and British
Columbia. By her will the testatrix appointed executors, made some
specific devises, and bequeathed the income of the rest of her estate
in equal shares between her two daughters and the survivor of them for
life, with remainder in equal shares to her two grandsons, who were
the sons of one of the testatrix's daughters and of whom one is the
appellant. In England, letters probate of the will were granted to one
of the executors, Bourke, and those letters probate were resealed in
the Supreme Court of British Columbia in November 1920. Later Bourke,
by deed, appointed the respondent and one Roberts to be trustees of
the testatrix's will in his stead. In May 1925 one Bushnell was
appointed in the place of Roberts. By an order made in the Supreme
Court of British Columbia in October 1941 the appointment of the
respondent and Bushnell as trustees of the will was confirmed. At some
unstated date the respondent assumed sole administration of the
estate. In 1940 one of the two life tenants died. In 1963 one of the
two remaindermen died, naming the appellant his sole executor and
trustee. In 1964 the surviving life tenant died. The appellant then
became entitled to one half of the testatrix's estate in his own right
and to the other half in his capacity as executor of his brother.
3 Following the death of the last surviving tenant for life, the
revenue authorities in the United Kingdom claimed estate duty under
the Finance Act, 1894 (Imp.), c. 30, in a sum in excess of $10,000.
This put the respondent in a difficult position. It was incor****ated
in England and did business and had assets both there and in British
Columbia. Under the Finance Act, 1894, it was accountable for the
estate duty in respect of all personal property wheresoever situate of
which the testatrix was competent to dispose at her death. The value
of the assets in the United Kingdom was only some $3,000, while the
value of the assets in British Columbia was in excess of $60,000. The
appellant took the position that, if the respondent paid the estate
duty in the United Kingdom, it would be entitled to recoup itself only
to the extent of the assets there and could not be indemnified to the
extent of the difference out of the assets in British Columbia.
4 From time to time the appellant made demands on the respondent
that it distribute all the assets in British Columbia to him. Because
of the difficulty mentioned, the respondent would not do this. In
September 1968 the appellant commenced these proceedings. In November
1968 the order appealed against was made. The appellant appealed and
this appeal first came on for hearing in May 1969; but, after the
appellant's argument had proceeded for a time, the appeal was
adjourned so that further information might be got. The information
was collected and further, in June and July 1970, the respondent paid
the duties in the amount of =A33,897.16.0d. Hearing of the appeal
resumed on 25th November 1970.
5 The respondent takes the position that it is entitled to be
indemnified in respect of the estate duty that it has paid out of the
assets of the estate wherever situate and it relies on the principles
stated in Hardoon v. Belilios , [1901] A.C. 118. There the plaintiff
was the registered holder of partly-paid shares that he held in trust
for the defendant as beneficial owner; calls were made on the shares;
the question raised by the appeal was whether the plaintiff was
entitled to be indemnified by the defendant against the calls. Lord
Lindley delivered the judgment of the Judicial Committee and he said
at p. 123:
The next step is to consider on what principle an absolute beneficial
owner of trust property can throw upon his trustee the burdens
incidental to its owner****p. The plainest principles of justice
require that the cestui que trust who gets all the benefit of the
property should bear its burden unless he can shew some good reason
why his trustee should bear them himself. The obligation is equitable
and not legal, and the legal decisions negativing it, unless there is
some contract or custom imposing the obligation, are wholly irrelevant
and beside the mark. Even where trust property is settled on tenants
for life and children, the right of their trustee to be indemnified
out of the whole trust estate against any liabilities arising out of
any part of it is clear and indisputable; although, if that which was
once one large trust estate has been converted by the trustees into
several smaller distinct trust estates, the liabilities incidental to
one of them cannot be thrown on the beneficial owners of the others.
This was decided in Fraser v. Murdoch (1881), 6 App. Cas. 855, which
was referred to in argument. But where the only cestui que trust is a
person sui juris, the right of the trustee to indemnity by him against
liabilities incurred by the trustee by his retention of the trust
property has never been limited to the trust property; it extends
further, and imposes upon the cestui que trust a personal obligation
enforceable in equity to indemnify his trustee. This is no new
principle, but is as old as trusts themselves.
6 Then Lord Lindley said at p. 125:
When a trustee seeks indemnity from his cestui que trust against
liabilities arising from the mere fact of owner****p, there is neither
principle nor authority for saying that the trustee need prove any
request from his cestui que trust to incur such liability. In the case
supposed the trust involves such liabilities, and the trustee, whilst
he remains such, cannot get rid of them. He is subject to them as
legal owner; but in equity they fall on the equitable owner unless
there are good reasons why they should not.
7 Finally he said at p. 127:
It is quite unnecessary to consider in this case the difficulties
which would arise if these shares were held by the plaintiff on trust
for tenants for life, or for infants, or upon special trusts limiting
the right to indemnity. In those cases there is no beneficiary who can
be justly expected or required personally to indemnify the trustee
against the whole of the burdens incident to his legal owner****p; and
the trustee accepts the trust knowing that under such cir***stances
and in the absence of special contract his right to indemnity cannot
extend beyond the trust estate, i.e., beyond the respective interests
of his cestuis que trustent.
8 From this authority it is clear that the respondent is entitled
to be indemnified out of the estate and any part thereof against the
estate duties it has had to pay unless the appellant "can shew some
good reason why his trustee should bear them himself".
9 The respondent refers also to s. 97 of The Trustee Act, R.S.B.C.
1960, c. 390, which reads in part:
97. A trustee, without prejudice to the provisions of the instrument
(if any) creating the trust, ... may reimburse himself, or pay or
discharge out of the trust premises, all expenses incurred in or about
the execution of his trusts or powers.
10 The appellant advances as a good reason why the respondent
itself should bear the estate duties (or, rather, so much of them as
cannot be met out of the assets in the United Kingdom) that which is
referred to in United States of America v. Harden, [1963] S.C.R. 366
at 369, 44 W.W.R. 630, 41 D.L.R. (2d) 721, as the well-established
rule "that a foreign State is precluded from suing in this country for
taxes due under the law of the foreign State", at p. 370 as "the
proposition 'that in no cir***stances will the courts directly or
indirectly enforce the revenue laws of another country'," and at p.
371 as "the special principle that foreign States cannot directly or
indirectly enforce their tax claims here". At p. 371 Cartwright J. (as
he then was), who delivered the judgment of the Court, spoke of "this
rule, which is one of public policy". In the judgment of this Court
(1962), 40 W.W.R. 428, 36 D.L.R. (2d) 602, against which the appeal to
the Supreme Court of Canada was taken, Sheppard J.A. said at p. 430:
Also, the courts will not entertain an action brought by an individual
which will indirectly have the effect of enforcing the revenue laws of
a foreign country.
11 It will be useful, before I examine the authorities cited by
counsel for the appellant, to discuss the cir***stances here. The
respondent is an English company, having been incor****ated in England
under the Companies (Consolidation) Act, 1908 (Imp.), c. 69, and so is
amenable to all the laws of England applicable to such a company. It
became a trustee of the estate of the testatrix, with the duty of
administering that estate in accordance with her will. (It might be
reasonable to infer that it was because the respondent did business in
both England and British Columbia that it was chosen to be the
trustee.) Upon the death of the last surviving tenant for life, estate
duty became payable in England under the Finance Act, 1894. Under s. 8
of that Act the respondent was accountable for the estate duty. It was
a matter of no concern to the Estate Duty Office where the respondent
found the money to pay the duty. If the respondent did not pay, the
Office could get judgment against it in England and, if necessary,
cause it to be wound up. The Office made its position clear in a
letter from its Solicitor's Office dated 22nd October 1968:
I am instructed by the Board to inform you that, whether or not the
Canadian Court should refuse to allow your client, The York****re and
Canadian Trust Limited, to indemnify itself from the Canadian assets,
the Board would seek to enforce the personal liability of the company
as trustee under Section 8(4) Finance Act 1894.
12 The Estate Duty Office was not seeking to lay its hands on any
property in British Columbia or otherwise to enforce its tax claims
here. Acting in accordance with the Finance Act, 1894, it was seeking
to gain from an English company the payment of duty for which the Act
provided that the company should be accountable. At the time when
these proceedings were commenced the respondent was in a position
where it would soon be compelled to pay; since then it has --
reasonably, in my opinion -- paid. The fact that it has paid makes no
difference to the decision of this appeal.
13 I turn now to an examination of the authorities. This is not a
case like United States of America v. Harden, supra, where the
government of the United States, having obtained a judgment there for
taxes, sued upon that judgment in a British Columbian court; it was
held that the claim upon the judgment remained a claim for taxes, and
so the action failed. Nor is this case like Peter Buchanan Ltd. and
Macharg v. McVey, [1955] A.C. 516n. There the defendant was the sole
beneficial owner of the shares of a company incor****ated and doing
business in Scotland; the company was *****sed in respect of excess
property tax and income tax; to escape the effect of these taxes the
defendant caused the company to pay him large sums which he deposited
in Eire and he removed himself to that country; enough money was left
in the company to pay its creditors; the Inland Revenue petitioned to
wind up the company compulsorily, an order was made and Macharg was
appointed liquidator; he worked in every respect hand in glove with
the authorities in an effort "to chase the tax"; finally the company
and Macharg took proceedings in Eire for an account of all moneys due
to the company by the defendant and for other relief. Kingsmill Moore
J. held that the sole object of the liquidation proceedings in
Scotland was to collect a revenue debt and that the sole object of the
proceedings in Eire was to collect a Scottish revenue debt, and he
rejected the claim. An appeal was dismissed by the Supreme Court of
Eire. Government of India, Ministry of Finance (Revenue Division) v.
Taylor, [1955] A.C. 491, [1955] 1 All E.R. 292, is also
distinguishable. There the Government of India sought to prove in the
voluntary liquidation of a company registered in the United Kingdom
but trading in India for a sum due in respect of Indian income tax;
the proof of debt was rejected. Still another case is Re Visser; Queen
of Holland v. Drukker, [1928] Ch. 877, where the Queen sued in England
the administrator of the estate of a Dutch subject, who died domiciled
in Holland, to recover Dutch death duties; applying the rule sought to
be invoked here, Tomlin J. dismissed the suit. In every one of the
cases I have referred to, success would have enriched the treasury of
the interested state. In the case at bar, whether or not the
respondent trustee is indemnified cannot affect to the slightest
degree the amount of estate duty collected in England. Further, in
each of those cases the foreign state was, in England or Eire, the
plaintiff, the claimant or the instigator of the proceedings. Here the
United Kingdom has nothing whatever to do with the respondent's claim
to be indemnified.
14 For similar reasons one can distinguish Banco de Vizcaya v. Don
Alfonso de Borbon y Austria, [1935] 1 K.B. 140: The ex-King of Spain
had deposited with the Westminster Bank certain securities with
instructions that they were to be held to the order of the Banco de
Vizcaya as his agents. After the Revolution the ex-King claimed the
deposits and they were at the same time claimed by the Spanish bank,
on the ground that by decree of the Spanish Government all the
property of the King had been confiscated to the state and all Spanish
bankers having such property or deposit had been ordered to deliver it
to the Spanish treasury. In an interpleader issue Lawrence J. rejected
the claim of the bank, holding that the substance of the right sought
to be enforced by the bank was the delivery to it of the securities,
and that the enforcement of such right would directly or indirectly
involve the execution of what were undoubtedly and admittedly penal
laws of the Spanish Republic. He rejected the argument that the bank
was only enforcing its own contractual rights against the Westminster
Bank. In substance it was not enforcing its own contractual rights but
the rights of the Spanish Republic.
15 The development of the rule, which was first applied to penal
laws, is obscure. Two possible explanations were mentioned by Lord
Keith of Avonholm in Government of India, Ministry of Finance (Revenue
Division) v. Taylor, supra, in a passage that is quoted by Cartwright
J. in United States of America v. Harden, supra, at p. 370. It is
first said:
One explanation of the rule thus illustrated may be thought to be that
enforcement of a claim for taxes is but an extension of the sovereign
power which imposed the taxes, and that an assertion of sovereign
authority by one State within the territory of another, as distinct
from a patrimonial claim by a foreign sovereign, is (treaty or
convention apart) contrary to all concepts of independent
sovereignties.
16 There is here no assertion of sovereign authority by the United
Kingdom in British Columbia. The other explanation, perhaps over-
simplified, is that entertainment of a suit for taxes imposed by a
foreign state may involve a scrutiny of the liability to see whether
it runs counter to the settled public policy of the domestic state;
such a scrutiny involves the relations between the states themselves,
and courts are incompetent to deal with such relations. As Learned
Hand J. is quoted as saying, "No court ought to undertake an inquiry
which it cannot prosecute without determining whether those (revenue)
laws are consonant with its own notions of what is proper." This case
requires no such scrutiny or inquiry. The Court is concerned only with
the fact that by reason of its position as trustee of the testatrix's
estate the respondent became accountable, in cir***stances where the
liability could be enforced against it, to pay a tax. For what it is
worth, a consideration of these two explanations does not suggest that
the rule should be applied here.
17 In my opinion the appellant has failed to show that the rule
(or proposition or principle) referred to in United States of America
v. Harden, supra, applies to this case, and consequently has failed to
show any good reason why the respondent trustee should bear any part
of the estate duty itself. I would dismiss the appeal.
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