*964 In Re Cunliffe-Owen, Decd.
Mountain v. Comber
[1951] Ch. 964
[1950 C. 4800]
Chancery Division
Ch D
Wynn-Parry, J.
1951 April 12; May 8; June 6.
Revenue--Will--Death duties to be paid out of residue--Incidence of
foreign duty--Estate duty--Testamentary expenses--English duties on
foreign personalty--Canadian succession duty--Relief from double
taxation--Credit allowed ag result of double taxation--How
ap****tionable among beneficiaries-- Double Taxation Relief (Estate
Duty) (Canada) Order, 1946 (S. R. & O. 1946, No. 1884)--Procedure with
regard to concession in respect of South African succession duty.
A testator, who died on December 14, 1947, by cl. 7 of his will, dated
November 22, 1947, directed that "so much of the death duties
payable ... in respect of all legacies ... as shall be equal to the
death duties at the rates in force at the date of this my will shall
be paid and discharged out of my residuary estate". A summons was
taken out to have determined the question, among others, whether
certain pecuniary legacies ought, as between such legacies and the
residuary estate, to bear certain foreign duties.
Held, that on the true construction of the will the scope of cl. 7 was
limited to the United Kingdom and that the legacies ought to bear
Union of South Africa succession duty, Province of Quebec succession
duty, and Dominion of Canada succession duty, and any interest on
those duties, but no other duties.
In re Norbury [1939] Ch. 528 followed.
In re Quirk [1941] Ch. 46; and In re Frazer [1941] Ch. 326 considered.
By cl. 6 of the will the testator bequeathed to trustees 15,000l. for
the benefit of a legatee on trusts to raise 2,500l. and pay thereout
duties on the sum bequeathed. The court was asked to determine
whether, in the event of that sum being insufficient, recourse could
be had, as against residue, to the provisions contained in cl. 7. By
cl. 9, the testator directed that "subject to the payment of my
funeral and testamentary expenses and debts and the legacies and
annuities given free of duty by this my will ... and all estate duty
and succession or legacy duty payable on my real estate ... and the
duties on any legacies or annuities given free of duty by this my
will ..." his trustees should hold the proceeds of sale of his
residuary estate on certain trusts.
Held, that cl. 6 was self-contained, and that, if there were any such
deficiency, it must be borne in full by the legatee.
Before the order made on the summons was drawn up, and when the
minutes were being drafted, a further question arose. The summons was,
therefore, restored to the list to have determined how a "credit",
which was allowed under the Double Taxation Relief (Estate Duty)
(Canada) Order, 1946, was to be disposed of by the executors.
*965 Held, that, on the construction of cl. 9, the testator had not
displaced the general rule that estate duty payable on foreign
personalty was not a testamentary expense and that (a) any sums paid
to the legatee under cl. 6 or applied in payment of any duties under
the direction to pay duties contained in that clause ought to be
treated as paid out of the assets of the testator's estate situate in
Canada in respect of the estate duty on which double taxation relief
was accorded and the other assets of the estate in the pro****tions
which the values of these cl***** of assets as valued at the
testator's death in the United Kingdom respectively bore to one
another; (b) the legatee under cl. 6 was entitled as between himself
and the persons interested in the residuary estate to a part of the
benefit of any credit granted in pursuance of the double taxation
relief allowance against estate duty imposed in the United Kingdom in
respect of assets situate in Canada, pro****tionate to that part of
those assets proper to be treated as applicable in payment of any sums
payable under cl. 6; (c) the remainder of any such credit enured, as
between the persons interested in the residuary estate for those
persons according to their respective interests in it; and (d) any
amount exigible in respect of South African succession duty, allowed,
by way of concession, to be deducted from South African personalty,
should be dealt with by the executors on a formula similar to that
indicated with regard to the credit given in respect of the estate
duty payable on the personal estate situate in Canada.
ADJOURNED SUMMONS.
The testator, Sir Hugo Cunliffe-Owen, who died on December 14, 1947,
by his will dated November 22, 1947, gave certain pecuniary legacies,
and, by cl. 6, gave to the trustees 15,000l. on trust to pay thereout
to John William Sholto Comber on each distribution of the capital of
the residuary estate such a sum as should bear the same pro****tion to
12,500l. as such distributed capital should bear to the total
residuary estate and to raise and pay out of the said sum of 15,000l.
the duties thereon. By cl. 7, the testator directed that, subject to
the provisions of cl. 6, "so much of the death duties payable with
reference to my death in respect of all legacies ... as shall be equal
to the death duties at the rates in force at the date of this my will
shall be paid and discharged out of my residuary estate" on trust as
to one-half for Marjorie Clara Jessie Cunliffe-Owen for her life and,
subject thereto, in trust for his children in manner therein
mentioned, and as to the other half in trust for her absolutely.
At the date of his will and for many years previously, the testator
owned substantial holdings of United States of America, Canadian
(including Quebec) and South African securities and *966 investments.
He had travelled extensively, was well acquainted with financial and
commercial conditions in many countries, and frequently bought and
sold investments in various countries.
A summons was taken out by one of the executors to have determined
whether and to what extent the legacies referred to ought, as between
those legacies and the residuary estate, to bear (a) estate duty
imposed in Great Britain payable in respect of realty in England; (b)
estate duty imposed in Great Britain payable in respect of movable
property situated abroad at the date of the death of the testator; (c)
Union of South Africa estate duty; (d) Union of South Africa
succession duty; (e) United States of America federal estate tax; (f)
Province of Quebec succession duty; (g) Dominion of Canada succession
duty; (h) any interest on any of the above mentioned duties.
Denys Buckley for the plaintiff.
E. I. Goulding for a legatee, John William Sholto Comber. The death
duties referred to in cl. 7 mean not merely duties of any kind in
Great Britain, but duties of any kind leviable in any country in the
world. The prima facie rule of construction is that, when a testator
speaks of death duties, he is confining himself to death duties
payable under English law: see In re Norbury [FN1]. The court ought,
however, to know the attendant cir***stances. In In re Quirk [FN2]
Morton, J., appears to have had in mind the necessity of ascertaining
what kind of man the testator was: see Wigram's Extrinsic Evidence in
Aid of the Interpretation of Wills (5th ed.), p. 9. The court, being
entitled to know what manner of man the testator was, is entitled to
take notice of the fact that his life was conducted in a cosmopolitan
manner. That being so, it is clear that he intended any foreign death
duties to be paid, not by the legatees, but out of residue.
FN1 [1939] Ch. 528.
FN2 [1941] Ch. 46.
Pennycuick, K.C ., and J. A. Wolfe for Marjorie Cunliffe-Owen. The
duties referred to in cl. 7 and cl. 9 of the will are confined to
duties in the United Kingdom and do not include any foreign death
duties. The determination of this question depends on the construction
of this particular will. The foreign duties are payable out of the
foreign assets as a whole. If the testator had wished that the foreign
duties should be paid by the legatees, he should have given an express
direction in the will to that effect. Clause 7 relieves the legatees
of all English duties and nothing more.
*967 Christie, K.C ., and Jackson Wolfe for the three children of the
testator. In re Frazer [FN3] reinforces the decision of Bennett, J.,
in In re Norbury [FN4]. The expression "the death duties at the rates
in force at the date of this my will" cannot apply to duties all over
the world. There is nothing in the will to alter the incidence of the
duties other than the English duties.
FN3 [1941] Ch. 326.
FN4 [1939] Ch. 528.
G. B. Parker for infant defendants interested in residue. Further
light is thrown on this question by cl. 9. The duties payable out of
residue, which are referred to in that clause in the expression "the
duties on any legacies or annuities given free of duty" are, having
regard to the context, clearly confined to United Kingdom death
duties.
WYNN-PARRY, J.
The first question which I propose to consider is whether the phrase
"the death duties" which appears in cl. 7 of the will refers only to
the United Kingdom death duties, or whether it extends to foreign
death duties payable in respect of foreign assets owned by the
testator. The clause in question reads as follows:- [His Lord****p read
cl. 7 and continued:] Clause 6, to which cl. 7 refers, is a clause by
which a sum of 15,000l. is bequeathed by the testator to his trustees
on certain trusts in favour of the defendant John William Sholto
Comber, and which in effect amounts to this, that as from time to time
the residuary estate is distributed then a pro****tionate sum, with a
maximum of 12,500l. placed on it, is to be transferred to that
beneficiary, and there is a provision that the sum of 15,000l. is to
be held "in addition to raise thereout and pay the duties of the said
sum". So that the scheme is that the testator envisaged the
beneficiary as receiving 12,500l., the remaining 2,500l. being used to
pay legacy duty. As has been pointed out, this sum of 2,500l.
represents the legacy duty which would have been payable if the
testator had died immediately after the making of the will, namely, at
the rate of 20 per cent.
The only other provision in the will to which I need refer for present
purposes is the opening passage of cl. 9, which recites: [His Lord****p
read it and continued:] Then follow directions as to the constitution
and dealing with what the testator described as "my residuary estate".
There is a rule of construction that prima facie a direction such as
is found in cl. 7, by which duties are thrown on the residuary estate
in exoneration of legacies, whether specific or *968 pecuniary, is to
be construed as referring only to United Kingdom death duties. That
rule is stated by Bennett, J., in In re Norbury [FN5]. That was a
simple case where a testator, domiciled in England, by an English will
bequeathed, free of duty, the sum of 15,000l. to his trustees on trust
to pay the income to a named beneficiary whose address was given in
Berlin. It was established that under German law, as then in force, a
tax known as the Inheritance Tax, was payable by her in respect of
such legacy, and she claimed that the expression "free of duty" and
the gift of the legacy to her included freedom from such inheritance
tax.
FN5 [1939] Ch. 528.
Bennett, J., in a short judgment, said: "I am told that there is no
direct authority upon the question raised for decision by the summons
now before me. The point is not covered by the decision of the Court
of Appeal in In re Scott [FN6]". That was the only case to which his
Lord****p was referred. Bennett, J., continued: "An English testator
must be presumed to know something about the duties the English law
imposes both upon his estate and upon beneficiaries under his will
when he dies; but not many of them, I suppose, know much, if anything,
about death duties imposed by the laws of foreign countries. Nor, I
suppose, would many of them contemplate some additional burden being
imposed upon their estates by a change of residence on the part of a
person to whom a legacy had been given. In the absence of authority, I
hold that, where an English testator by an English will gives a
pecuniary legacy ' free of duty', the only duties payable out of his
estate in respect of the legacy are duties imposed by English law,
unless there are words in the will which make it clear that duties
imposed by the law of a foreign country are to be paid thereout".
FN6 [1915] 1 Ch. 592.
That, as will be seen from the facts, was a case where the testator
was dealing only with property situate, or notionally situate, in
England, and there is to be noted this difference between that case
and this, that, as the evidence shows, the testator in the present
case had a very large amount of property in other countries, in
particular in South Africa, the United States of America and the
Dominion of Canada. The evidence further establishes that he was
actively concerned during his life with the management and
administration of that property and that he concerned himself in
minimizing, so far as he could, the burden of taxation in the various
countries, and had also concerned *969 himself with the incidence of
death duties as regards that foreign property.
In re Norbury [FN7] was considered by Morton, J., in In re Quirk
[FN8]. Morton, J., expressly stated his approval of and agreement with
the judgment of Bennett, J., in In re Norbury [FN9], but found that
there were particular cir***stances, which created a sufficient
contrast to enable him to distinguish the case before him from In re
Norbury [FN10]. There he was concerned with the will of a British
subject who stated that his domicile was in England, but who was
ordinarily resident in Turkey, and who left certain immovable property
in France and died in Switzerland. The question was whether a demise
free of death duties of that immovable property in France resulted in
that duty being payable out of the estate and not by the devisee.
FN7 [1939] Ch. 528.
FN8 [1941] Ch. 46.
FN9 [1939] Ch. 528.
FN10 [1939] Ch. 528.
Towards the end of his judgment Morton, J., stated several grounds on
which he found it possible to distinguish the case before him from In
re Norbury [FN11]. He said [FN12]: "In the first place there is the
fact that at the date of the will and at the date of the testator's
death there was no duty payable in respect of this land other than the
'mutation' duty. In the second place the observation of Bennett, J.,
that not many English testators would 'contemplate some additional
burden being imposed on their estates by a change of residence on the
part of the person to whom a legacy had been given' has no application
to a case such as the present, where the gift is one of an immovable
property. ... In the third place, this testator was a man who, as
appears from his will, was ordinarily resident in Turkey and owned
real property in France. I think that he was more likely to have in
mind duties payable in a foreign country than a testator who was
resident in England and owned no property abroad".
FN11 [1939] Ch. 528.
FN12 [1941] Ch. 51.
I take that last passage as indicating that Morton, J.,
notwithstanding the last sentence of the judgment of Bennett, J., in
In re Norbury [FN13], felt free to investigate the question whether or
not, having regard to the attendant cir***stances, the scope of such a
phrase as "free of all duties" was limited so as only to throw on the
residue United Kingdom duties, or had any wider scope. Indeed, I think
that that conclusion must follow from the earlier reasoning in the
short judgment of Bennett, J., and I take the view that such a phrase
as that which I have to consider *970 may, in appropriate
cir***stances, be given a wide scope rather than a narrower scope by
reason of the attendant cir***stances, if they are sufficiently
compelling, and even in the absence of express words in the will
referring to duties imposed by the law of foreign countries.
FN13 [1939] Ch. 528.
Finally, I should refer to In re Frazer [FN14]. That case concerned a
testator who, by his will, directed his trustees out of the income of
his residuary trust fund to pay to his widow such a sum as would
together with the income received by her under his marriage
settlement, produce an annual income for her of 2,000l., "free of all
taxes (including income tax) and duties". Some time after his death
his widow married again and went to live in Kenya Colony. She claimed
that the gift in the will free of all taxes, including income tax,
operated to throw on the testator's residuary estate the income tax
payable by her in respect of the income under the law of that colony.
FN14 [1941] Ch. 326.
Farwell, J., held against that contention. After reading the judgment
of Bennett, J., he says in the course of his judgment [FN15]: "I feel
a difficulty. The term 'all taxes' is very wide and prima facie
certainly would include a tax imposed, in respect of the income, by
any country in which the lady happened to be living. But that is not
the conclusion to which I think I ought to come. I think that I should
adopt the reasons given by Bennett, J., although I am not suggesting
that his decision covers this case or is itself a decision which I am
in any way bound to follow. I think that when the testator gave the
lady an income and directed that the amount of it should be calculated
free of payment of all taxes including income tax and duties, he was
only contemplating such taxes and duties as were properly payable from
time to time under the laws of this country and that he did not
contemplate or intend to include a tax to which the lady has become
liable solely by reason of her change of residence after his death". I
read that passage as sup****ting the view which I have expressed that,
notwithstanding the words at the end of Bennett, J.'s judgment in In
re Norbury [FN16], "unless there are words in the will which make it
clear that duties imposed by the law of a foreign country are to be
paid thereout", a wider scope to such words as are found in cl. 7 can
be given if the attendant cir***stances are sufficiently compelling. I
take the view, however, that, before giving to such words as "the
duties" the *971 wider scope contended for by Mr. Goulding, the court
should be satisfied that the attendant cir***stances are of a really
compelling nature.
FN15 Ibid. 330.
FN16 [1939] Ch. 528.
Here, as I say, the evidence establishes that the testator had widely
spread foreign interests and had, among other activities, been
concerned in obtaining advice as to how to minimize the incidence of
death duties on those various assets. But in my view that evidence,
taken by itself, is not enough to constitute such a compelling
cir***stance as to justify me in departing from the rule laid down by
Bennett, J., as the rule prima facie to be followed in a case like
this, and I think there is great force in the contention which has
been put forward by Mr. Pennycuick and Mr. Christie that, had the
testator desired to exonerate the beneficiaries and throw the burden
of foreign death duties on the residue, nothing would have been
simpler than for him to have inserted express words in his will to
deal with this matter.
I think, however, that there is another cir***stance which prevents me
from giving to the words "the death duties" in cl. 7 the wide scope
contended for, and that emerges from the submission which was made to
me by Mr. Parker and based on the construction of the opening passage
of cl. 9. It will be observed that in that clause the testator, having
provided that subject to the payment of his funeral and testamentary
expenses - which latter phrase would include estate duty on the
personalty in the United Kingdom - and subject to his debts and the
legacies and annuities given by his will, dealt with specific duties,
namely, "all estate duty and succession or legacy duty payable on my
real estate (including chattels real)". That estate duty and
succession or legacy duty, in the context, can, in my view, only mean
United Kingdom estate duty and succession or legacy duty. And then,
following upon that phrase which I have so construed, comes the phrase
"and the duties on any legacies or annuities given free of duty by
this my will or any codicil hereto". That is a perfectly usual clause.
I think, in the context, that the phrase "the duties on any legacies
or annuities given free of duty" provides the clue to the meaning or
scope of the phrase "the death duties" appearing in cl. 7. It is as if
cl. 7 had been so constructed as to contain a direction that all the
benefits given by the testator's will referred to in cl. 7 had been
given free of duty. If it comes only to that, then there is even less
ground than otherwise might be the case for saying that there is any
context in the will which would justify any more extended meaning
being given to the phrase "death duties" than must be given *972 to it
if the rule enunciated by Bennett, J., in In re Norbury [FN17] is
applied.
FN17 [1939] Ch. 528.
For those reasons, in my view the scope of the phrase "the death
duties" in cl. 7 is limited to United Kingdom death duties, and the
legacies will bear Union of South Africa Succession Duty, Province of
Quebec Succession Duty, Dominion of Canada Succession Duty, but no
other duties, and any interest on such duties.
[His Lord****p then considered a question which arose on the
construction of cl. 6 of the will, and summarized his judgment as
follows:-]
The point is a short one, and its answer really depends on one's first
impression. In my judgment the true view is that cl. 6 is a self-
contained clause and that in that clause the testator decided to
exhaust his bounty as regards the exoneration of the legatee (J. W. S.
Comber) from liability for duties; and that if there is any deficiency
through the sum of 2,500l. not being sufficient, the legatee cannot
have recourse, as against residue, to the provision in cl. 7.
Before the order made on this summons was drawn up, and when the
minutes were being drafted, an entirely new question arose. The
summons was, therefore, restored to the list to have that question
determined, namely, how a credit allowed under the Double Taxation
Relief (Estate Duty) (Canada) Order, 1946 [FN18], was to be disposed
of by the executors.
FN18 By the Double Taxation Belief (Estate Duty) (Canada) Order, 1946,
it is declared (para. 2), "(a) that the arrangements specified in the
agreement set out in the schedule to this order have been made with
the Government of Canada with a view to affording relief from double
taxation in relation to estate duty payable under the laws of the
United Kingdom and duty of a similar character imposed under the laws
of Canada, and (b) that it is expedient that those arrangements should
have effect". Article 1 of the schedule to the order provides: "(1)
The duties which are the subject of the present agreement are: (a) In
the United Kingdom, the estate duty imposed in Great Britain, and (b)
In Canada, the succession duty imposed by Canada". Article 5 (1)
provides: "Where one contracting government imposes duty by reason of
a deceased person domiciled in some part of its territory at the time
of his death, that contracting party shall allow against so much of
its duty (as otherwise computed) as is attributable to property
situated in the territory of the other contracting government a credit
(not exceeding the amount of the duty so attributable) equal to so
much of the duty imposed in the territory of the other contracting
government as is attributable to such property".
*973 Denys Buckley for the plaintiff. The question is whether the
estate is entitled to the benefit of the relief in respect of the
Canadian taxation or whether Marjorie Cunliffe-Owen is entitled to a
greater advantage, as she had to bear a heavy rate of duty in Canada.
The only duty affected by this question is Canadian succession duty.
There is a substantial difference between the two countries as regards
the amount of duty payable. [Counsel referred to Finance (No. 2) Act,
1945, s. 54.]
Pennycuick, K.C ., and J. A. Wolfe, for Marjorie Cunliffe-Owen. For
every 1l. of Canadian succession duty paid 1l. of English estate duty
is remitted. The question is how the benefit of this remission should
be ap****tioned between the several beneficiaries. This legatee has
paid Canadian duty out of her own pocket, and has absolved the whole
of the estate from certain duty. There is an equitable principle that
a beneficiary who has made a payment which has been to the advantage
of the estate as a whole should have the benefit of the advantage
which the estate has had. It cannot be right that, when one
beneficiary pays a sum out of his pocket in this way, and another
beneficiary has not done so, both should benefit equally out of the
estate. This legatee has, by the payment of a sum of money, absolved
the estate from payment of duty in respect of 15,000l. of Canadian
assets. There is no authority on this question. This dual taxation is
sui generis. It is only possible to apply a general principle: see In
re Joel [FN19].
FN19 [1943] Ch. 311.
Christie, K.C ., and Jackson Wolfe for the three children of the
testator. The executors have discharged the liability imposed on the
estate by the Canadian law. The duty had to be paid before they could
deal with the Canadian assets. If the duties have in fact been paid in
Canada, the executors, who pay English estate duty, are entitled to
reduce the estate duty payable by the amount of the remission.
The executors have to pay the duties on the English personalty and
also on the Canadian personalty before the residue can be ascertained.
It is a question of construction whether "testamentary expenses" in
this will include Canadian duties. As a matter of principle the
Canadian duty should be a testamentary expense. There is no precise
authority that foreign duty is a testamentary expense. In In re Scull
[FN20], however, it has been held that the duty on overseas property
is not a testamentary expense.
FN20 (1917) 87 L. J. (Ch.) 59.
*974 Here Marjorie Cunliffe-Owen has paid a large amount of Canadian
succession duty as a stranger-in-blood. A remission of English estate
duty is granted in respect of this Canadian succession duty. English
estate duty payable on Canadian personalty is a testamentary expense
and, as such, is payable before the residue is distributed. In In re
Clemow [FN21] it was decided that estate duty is a testamentary
expense. In O'Grady v. Wilmot [FN22] the question whether estate duty
is a testamentary expense was considered. That is not a decision which
prevents the court from coming to any conclusion which the court
thinks proper as to the meaning of "testamentary expenses" in the
present will.
FN21 [1900] 2 Ch. 182, 194.
FN22 [1916] 2 A. C. 231, 258, 267, 274.
In In re Scull [FN23], in which it was held that there was no
indication in the will that certain American investments were to be
exonerated from their rateable pro****tion of estate duty, it is clear
that those securities were held not to pass to the executors "as
such". So far as construction is concerned in the present case, the
ordinary meaning must be given to testamentary expenses, namely, all
duties which the executor has to pay in the performance of his duty.
The executors have to pay this duty in the first place; then, in due
course, they would have the benefit of the remission. No specific part
of the estate goes to any specific legatee and, consequently, there is
no one on whom the executors can call for any part of the funds. The
principle that a remission of this sort falls into the "pool" is shown
in In re Joel [FN24]. [Counsel also referred to In re Hadley [FN25]
and In re Avery [FN26].]
FN23 (1917) 87 L. J. (Ch.) 59.
FN24 [1943] Ch. 311, 319.
FN25 [1909] 1 Ch. 20.
FN26 [1913] 1 Ch. 208.
E. I. Goulding for J. W. S. Comber. The duty is a testamentary expense
included in the estate duty, which is payable in one lump sum out of
the general estate. There is also a point on the construction of the
language used in cl. 9 of the will. The testator clearly had estate
duty in his mind when he referred to duty on his real estate.
G. B. Parker for infant defendants interested in the residuary estate.
It is clear that the relief goes to estate duty and that these foreign
securities passed to the executors "as such", the expression "as such"
meaning "by virtue of their position as executors". An English grant
extends to foreign property for the purpose of "getting it in". When
it has been "got in" *975 the executors deal with it. [He referred to
Dicey's Conflict of Laws (6th ed.), p. 336, r. 58, and p. 338, and to
In re Scott [FN27].]
FN27 [1916] 2 Ch. 268, 277.
Pennycuick, K.C ., in reply. The position before the Finance Act,
1894, was that probate duty was payable only in respect of property
which passed to the executor virtute officii. The law on the point is
summarized in Dymond on Death Duties (11th ed.), p. 26. In In re Owers
[FN28] estate duty was held not to be a testamentary expense. That is
the accepted view today: see Dymond on Death Duties (11th ed.), p.
344.
FN28 [1941] Ch. 17.
Cur. adv. vult.
June 6.
WYNN-PARRY, J.
, in a written judgment, stated the further question and continued:- I
have already held that, on its true construction, the direction in cl.
6 of the will to pay the duties on the sum there mentioned does not
extend to, inter alia, Canadian succession duty, but does extend to
all other death duties wheresoever payable in reference to the death
of the testator, including estate duty imposed in Great Britain, in
respect of movable property situate abroad at the testator's death,
which but for that direction would be payable by Mr. Comber; and
further that if and so far as the provision made for payment of these
latter duties shall be insufficient to pay the same in full they must
be borne by Mr. Comber personally.
As regards Canadian succession duty, the expert evidence establishes
that this duty *****sed in respect of any succession under the will of
a testator is payable by the successor. No part of this duty is
payable ultimately out of the residuary estate. In the case of
successions to the residuary estate or any share or interest therein
the Canadian succession duty thereon is payable by the individual
successors as in the case of a pecuniary legacy, and if paid by the
executors is recoverable from the individual successors. I have,
therefore, already held that Canadian succession duty ought to be
charged against the respective shares in the residuary estate
bequeathed by cl. 9 of the will. Canadian succession duty is *****sed
at rates which vary, inter alia, with the relation****p of the
successor to the testator: and as Miss Cunliffe-Owen was not a
relation of the testator, she has had to bear Canadian succession duty
at a higher rate than is exigible in the cases of the other residuary
legatees, all of whom are children of the testator.
*976 In these cir***stances I have to decide whether or not Mr. Comber
is entitled to share in the relief accorded in respect of the
testator's estate by the double taxation relief agreement to which I
have referred.
As between Miss Cunliffe-Owen on the one hand and the other residuary
legatees on the other hand, I have to decide whether any credit
arising by virtue of the double taxation relief agreement, after
providing for any part thereof to which Mr. Comber may be held to be
entitled, enures as between the persons interested in the residuary
estate according to their respective interests therein or among them
in pro****tion to the amount of Canadian succession duty borne by them
respectively.
It was argued that the phrase "testamentary expenses" includes the
whole of the estate duty payable in respect of the testator's personal
estate wherever situate, and for this proposition reliance was placed
on In re Clemow [FN29]. It is true that the language of the judgment
appears to be wide enough to sup****t this proposition, but it is to be
observed that it does not appear from the re****t that any estate duty
on foreign personalty was involved. In any event it cannot be doubted,
since the decision of the Court of Appeal in In re Scull [FN30],
following the reasoning of the House of Lords in O'Grady v. Wilmot
[FN31], that, apart from any direction in the will to the contrary,
the estate duty payable on foreign personalty is not a testamentary
expense, because the foreign personalty does not come to the hands of
the executor virtute officii; it is a charge on that personalty.
FN29 [1900] 2 Ch. 182.
FN30 87 L. J. (Ch.) 59.
FN31 [1916] 2 A. C. 231.
Turning to cl. 9 of the will, I am unable to find any sufficient
direction to displace the application of the general rule to which I
have referred. It was argued that as the testator has thrown on
residue, in addition to what on its true construction is to be
regarded as covered by the phrase "testamentary expenses", such
further burdens as "all estate duty and succession and legacy duty
payable on my real estate (including chattels real) and the duties on
any legacies or annuities given free of duty", he cannot have meant to
exclude the estate duty payable in respect of foreign personalty, and
that therefore the phrase "testamentary expenses" should be given a
wide meaning. I cannot accept this argument. In my view one must
approach the construction of the opening words of cl. 9 with the
general rule in mind and then inquire to what extent, if at all, the
*977 testator has displaced it. On this basis one must construe the
phrase "testamentary expenses" as prima facie including, as regards
estate duty, only estate duty on the personalty situate in the United
Kingdom. Now, when one reads further, one finds that the testator has
expressly thrown on residue the estate duty on free realty: but this
estate duty is not a testamentary expense: In re Sharman [FN32]. To my
mind this cir***stance precludes me from holding that the phrase
"testamentary expenses" should be construed as including the estate
duty on foreign personalty.
FN32 [1901] 2 Ch. 280.
The result is that, in accordance with the general rule, the
beneficiaries concerned will eventually bear the estate duty on the
foreign personalty, Mr. Comber to the extent that I have already held,
and those interested in the residuary estate the remainder.
The credit which is given under the double taxation relief agreement
is a credit in respect of the estate duty payable in respect of the
personal estate situate in Canada, which estate duty, as I have held,
will have to be borne eventually by Mr. Comber and the residuary
legatees. It therefore follows, to my mind, that this credit should
enure, not for the benefit of the testator's estate generally but for
the benefit of the persons who have to bear the estate duty on the
Canadian personalty.
As far as Mr. Comber is concerned, there will be a provision in the
order that any sums paid to him under cl. 6 of the will or applied in
payment of any duties under the direction to pay duties contained in
that clause ought to be treated as paid out of assets of the
testator's estate situate in Canada in respect of the estate duty on
which double taxation relief is accorded, and the other assets of the
estate in the pro****tions which the values of these cl***** of assets
as valued at the testator's death for the purposes of estate duty in
the United Kingdom respectively bear to one another. There will be a
further provision in the order that Mr. Comber is entitled as between
himself and the persons interested in the residuary estate to a part
of the benefit of any credit granted pursuant to the double taxation
relief agreement, to which I have referred, against estate duty
imposed in the United Kingdom in respect of assets of the estate
situate in Canada pro****tionate to that part of such assets proper to
be treated as applicable in payment of any sums payable under cl. 6 of
the will.
*978 There is left the question how the remainder of any such credit
should be ap****tioned between Miss Cunliffe-Owen on the one hand and
the remainder of the residuary legatees on the other hand. On behalf
of Miss Cunliffe-Owen it was argued that the division should be made
by reference to the amount of the Canadian succession duty borne by
each residuary legatee. I cannot accept this argument. I have held
that in this case the residuary legatees must bear the estate duty on
the Canadian personalty. They will bear this duty according to their
interest in the residuary estate. I have already held that any credit
given under the double taxation relief agreement is to be treated as a
credit in respect of the estate duty payable in respect of the
personal estate in Canada. In my view, therefore, the only logical
course is to apply the benefit in the shape of any credit in the same
way as the division of the burden is ascertained, that is, by
reference to the respective interests of the residuary legatees in the
residuary estate. There will therefore be a declaration in the order
that the remainder of any such credit enures as between the persons
interested in the residuary estate for such persons according to their
respective interests therein.
The only other duty in respect of which I heard argument was South
African succession duty. The position as regards this duty is
different from that as regards Canadian succession duty in that there
is no double taxation relief agreement covering South African
succession duty. Nevertheless, the Inland Revenue, by way of
concession, allow the amount exigible in respect of South African
succession duty to be deducted from the value of the South African
personalty; that is, they allow that duty to be treated as a debt.
According to the expert evidence, South African succession duty
*****sed in respect of any succession is payable by the successor, and
if paid by the executors is recoverable by them from the successor. No
part of the duty is payable ultimately out of the residuary estate.
The duty is *****sed at rates varying with the relation****p of the
successor to the testator. The question therefore arises how the
amount of South African succession duty allowed by way of the
concession to which I have referred should be ap****tioned. In my
judgment the same reasoning should apply as in the case of the credit
given in respect of Canadian succession duty. Mr. Comber will be
entitled to share in the amount of such concession on a similar
formula to that which I have already indicated, and the residuary
legatees *979 will be entitled to have the remainder ap****tioned
between them according to their respective interests in the residuary
estate.
Representation
Solicitors: W. Gordon Hill; Charles Russell & Co.
Declaration accordingly. (J. L. D. )
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