18 E.T.R. 12, 1984 CarswellOnt 566
Fudger, Re
RE FUDGER
Ontario Supreme Court, High Court of Justice
White J.
Heard: October 26, 1984
Judgment: December 4, 1984
Counsel: John T. DesBrisay, Q.C. , and John W.R. Day for applicant
Canada Permanent Trust Co. in its capacity as executor.
John W. Adams , for applicant Canada Permanent Trust Co. in its
personal capacity.
W.L.N. Somerville, Q.C. , and W.D.R. Beamish , for respondent Eunice
King McPherson and others, interested in the deceased's estate in
Canada.
John L. Ronson , for respondents Richard MacDuff Urquart and M.A.
Williams , the Scottish executors.
Subject: Estates and Trusts; International
Conflict of Laws --- Succession -- Administration of estates -- Rights
of foreign creditors.
Wills -- Construction -- Payment of taxes -- Foreign taxes --
Provision of will for payment of taxes in connection with property
passing under will not applicable to foreign taxes.
The testatrix died in Scotland in 1980. She left property in Canada,
valued at $817,821, and property in Scotland valued at approximately
$160,000. Her Canadian property was disposed of by a Canadian will and
codicil to various friends and relatives residing in North America,
and these testamentary do***ents expressed the fact that they were
disposing of property in Canada. Her Scottish property was disposed of
by Scottish instruments to a United Kingdom charity, and these
do***ents expressed the fact that they were disposing of property in
the United Kingdom and that their terms were not to affect any
property outside of the United Kingdom. Paragraph 2(b) of the Canadian
will directed the executor:
To pay out of and charge to the capital of my general estate my just
debts, funeral and testamentary expenses and all estate, inheritance
and succession duties or taxes which may be payable in connection with
any property passing under this my will or any codicil thereto or in
connection with any insurance on my life ....
The United Kingdom Inland Revenue claimed capital transfer tax in
respect of all of the assets -- Canadian as well as Scottish -- of the
testatrix's estate. Under the United Kingdom tax law, both the
Canadian and the Scottish executors would be liable to pay the
*****sed capital transfer tax. The claim for the tax far exceeded the
value of the Scottish property so that if full payment was not made by
the executors the United Kingdom Inland Revenue could take the entire
Scottish property in partial satisfaction of its claim.
The Canadian executor sought the Court's direction as to the effect of
para. 2(b) of the Canadian will. It was conceded by all parties to the
application that Ontario law governed the construction of that
provision.
Held:
Paragraph 2(b) of the Canadian will did not require the Canadian
executor to pay out of the capital of the Canadian estate any United
Kingdom capital transfer tax *****sed against the executor in
connection with property passing under the Canadian will.
It is a general rule of construction that where a will contains a
direction for payment of taxes, duties or similar levies, such
direction is to be construed as referring only to taxes and duties
payable in the domestic jurisdiction, unless the attendant
cir***stances are sufficiently compelling to warrant the extension of
the primary meaning of that direction so as to include taxes and
duties imposed by the laws of a foreign jurisdiction.
In the present case, neither the terms of the wills nor the
surrounding cir***stances were sufficiently compelling so as to extend
the primary meaning of the direction in para. 2(b). In particular, the
scheme of the two wills showed that the testatrix intended to divorce
the testamentary administration of her Canadian assets from that of
her Scottish assets; she intended that each set of assets and
liabilities should be dealt with separately and distinctly. Moreover,
to construe the Canadian will in such a way as to require the Canadian
executor to pay the United Kingdom capital transfer tax simply because
the United Kingdom beneficiary under the Scottish will might otherwise
be exposed to the payment of taxes in the United Kingdom, would be an
indirect method of enforcing the revenue laws of a foreign
jurisdiction.
Cases considered:
Butler v. Southam, [1908] 2 Ch. 365, 99 L.T. 517 -- referred to
Charron v. Montreal Trust Co., [1958] O.R. 597, 15 D.L.R. (2d) 240
(Ont. C.A.) -- referred to
Cunliffe-Owen, Re; Mountain v. Comber, [1951] Ch. 964 -- referred to
Gibbins, Re; Royal Trust Co. v. Christ Church Cathedral Bldgs. Ltd.,
17 W.W.R. 137, [1955] 5 D.L.R. 553, 56 D.T.C. 1001 (B.C. S.C.) --
distinguished
Goetze, Re, [1953] Ch. 96 (C.A.) -- referred to
India (Govt. of), Min. of Finance v. Taylor, [1955] A.C. 491 (H.L.) --
referred to
Lorillard, Re; Griffiths v. Catforth, [1922] 2 Ch. 638 (C.A.) --
referred to
Norbury, Re; Norbury v. Fahland, [1939] Ch. 528 referred to
U.S.A. v. Harden, [1963] S.C.R. 366, 44 W.W.R. 630, 63 D.T.C. 1276,
[1963] C.T.C. 450 (S.C.C.) -- referred to
Wadsworth v. McCord, [1886] 12 S.C.R. 466 , affirmed (1889), 14 App.
Cas. 631 (sub nom. McMullen v. Wadsworth) (P.C.) -- referred to
Statutes considered:
Finance Act, 1975 (U.K.), c. 7.
Succession Law Reform Act, R.S.O. 1980, c. 488, ss. 35, 39.
Authorities considered:
Dicey and Morris, Conflicts of Law (10th ed., 1980), Rules 91, 104.
APPLICATION for directions of Court as to interpretation of a will.
White J.:
1 This is an application brought by the Canada Permanent Trust
Company (the "Permanent") in its capacity as executor of the last will
and testament and trustee of the estate situate in Canada of the late
Hannah Lake Fudger. The applicant seeks the opinion, advice and
direction of the Court upon three questions arising in and respecting
the management or administration of property passing under that will.
The second and third questions were withdrawn on consent. Only the
first question needs to be answered on this application. That question
is:
1. Does the direction to the Executor in paragraph 2(b) of the Will:
To pay out of and charge to the capital of my general estate my just
debts, funeral and testamentary expenses and all estate, inheritance
and succession duties or taxes which may be payable in connection with
any property passing under this my will or any codicil thereto or in
connection with any insurance on my life ...
require that the Executor pay out of the capital of the general
estate, or otherwise, taxes, interest and penalties which may be
*****sed, pursuant to the provisions of the United Kingdom Finance
Act, 1975, against the Executor in connection with property passing
under the Will?
2 The late Hannah Lake Fudger died in Scotland on or about 2
December 1980 at the age of 98. She left property in Canada (the
"Canadian estate") valued at $817,821 consisting chiefly of marketable
securities; and she left property in Scotland (the "Scottish estate")
valued at approximately $160,000 Can. consisting chiefly of her
dwelling in Edinburgh.
3 The Canadian estate was disposed of under a last will and
testament dated 15 November 1967 (the "Canadian will") which is the
subject of this application, and a codicil thereto dated 30 October
1967. Probate of the Canadian will was granted in the Surrogate Court
of the Judicial District of York on 30 April 1981. The Permanent was
appointed executor of the Canadian estate under the terms of the
Canadian will. The beneficiaries under the Canadian will and codicil
are friends and relatives of the deceased. They reside in Canada and
the U.S.A.
4 The Scottish estate was disposed of by a deed of settlement made
10 December 1965, as amended by a deed of settlement made 25 August
1967. I shall refer to these deeds of settlement as the "Scottish
will". Ronald MacDuff Urquhart and M.A. Williams were appointed
executors of the Scottish estate under the Scottish will and were
represented on this application. The substantial beneficiary under the
Scottish will is the Second Church of Christ, Scientist, a religious
organization recognized as a charity under the laws of the United
Kingdom.
5 The opening words of the Canadian will are as follows:
THIS IS THE LAST WILL AND TESTAMENT of me HANNAH LAKE FUDGER, of the
City of Toronto, in the County of York, and Province of Ontario, with
respect to all of my real and personal estate in the Dominion of
Canada.
6 The Codicil to the Canadian will begins:
THIS IS A CODICIL to the will of me, HANNAH LAKE FUDGER, which said
will is dated the 15th day of November, 1967, made with respect to my
assets in the Dominion of Canada.
7 The opening words of the Canadian will and of the Codicil to the
Canadian will may be contrasted instructively with the opening words
of the Scottish will:
I, MISS HANNAH LAKE FUDGER, Five Rothesay Terrace, Edinburgh, being
desirous of settling the succession to my means and estate in the
United Kingdom after my death Do Hereby GIVE, GRANT, BEQUEATH,
DISPONE, and CONVEY my whole estate, heritable and moveable, real and
personal situated within Scotland and the United Kingdom ... And I
hereby declare that the terms of this Will shall not affect the terms
of any other Will or mortis causa deed or writing which I may leave
and which may relate to any other estate belonging to me in Canada or
in any place situated outside the United Kingdom:
8 The testatrix was born in 1883 in Toronto of Canadian parents.
She was childless and never married. Except for a period of several
years during the second world war she was a permanent resident in the
Toronto area until the 1950's. She then began to spend time in the
United Kingdom. She acquired a residence in Edinburgh in 1956 when she
was about 73 years of age. In 1957 her Toronto residence was sold. For
some years thereafter when visiting in Canada, she stayed with her
sister in a separate apartment that she maintained in her sister's
home. That arrangement was continued until her sister's home was sold
following her sister's death in 1965.
9 The Canadian will was signed by the testatrix in Edinburgh. It
had been prepared by her Canadian solicitor and drafts were sent to
her and reviewed by her while she was in California in the period May
through February 1967. The codicil to the Canadian will was signed by
her in Toronto.
10 The deceased retained her income producing assets in Canada and
continued to file tax returns as a Canadian resident. For United
Kingdom tax purposes she was accepted as not being domiciled in that
country. The deceased did not pay United Kingdom tax on her Canadian
source income except to the extent that it was remitted to the United
Kingdom. Income from her Canadian assets were ac***ulated in Canada by
her fiscal agents and remitted to her from time to time as needed. She
was not resident in Scotland from January 5, 1966 to late 1968; nor
from January 1969 to May 1970. Before 1966 she usually lived in Canada
six months of every year.
11 After her death, the Permanent was notified by one of the
Scottish executors that the United Kingdom Inland Revenue Capital Tax
Office (the "CTO") might be claiming a capital transfer tax pursuant
to the Finance Act, 1975 (U.K.), c. 7 in respect of all of the assets
of the estate. Under that Act it appears that capital tax will be
*****sed against the deceased's entire estate, which would include
both assets disposed of under both the Canadian and the Scottish wills
if it is determined that she was domiciled in the United Kingdom at
the time of her death. Under the provisions of the Finance Act, 1975
she would be deemed to be so domiciled if she had been a resident of
the United Kingdom for at least seventeen years of the last twenty
years of her life. The effect of certain provisions of the United
Kingdom statute is to make both the Canadian and the Scottish
executors liable to pay the *****sed capital tax.
12 The potential claim of the CTO, under the Finance Act, 1975,
far exceeded the value of the Scottish estate. Should tax be imposed
under the Finance Act, 1975 the CTO would look to the payment of the
tax by the Canadian executor. In the event that such payment were not
made, the CTO could seize the entire Scottish estate in partial
satisfaction of its claim. For that reason, the Scottish executors and
beneficiaries have an interest in this application. If the Court were
to answer the question before it in the affirmative, the Scottish
beneficiaries would be relieved of their potential liability to the
CTO under the United Kingdom statute. Thus, the Scottish executors,
through counsel, participated in the argument of this application.
13 The Permanent has realized all of the Canadian assets and has
paid the debts of the estate and the specific legacies provided for
under the Canadian will. There remains for distribution among the
residual beneficiaries named in the Canadian will about $850,000.
Because of the size of the potential CTO claim, and the fees, costs
and other expenses that may be incurred in relation to it, the
executor of the Canadian will has not made any distribution of the
remaining assets among the residual beneficiaries of the Canadian
estate. The residual beneficiaries of the Canadian estate have advised
the executor that they wish full distribution of the remainder of the
estate and are not seeking partial distribution.
14 Questions relating to the enforceability and priority of the
claims of creditors against the assets of an estate are matters of
administration: Charron v. Montreal Trust Co., [1958] O.R. 597, 15
D.L.R. (2d) 240 (Ont. C.A.) at pp. 607-608 [O.R.]; in Re Lorillard,
Griffiths v. Catforth, [1922] 2 Ch. 638 (C.A.) . The administrator in
administering the estate is governed only by the lex fori, that is, by
the laws of the jurisdiction from which the person administering the
assets of the estate derived authority to collect them: Charron,
supra; India (Govt. of), Min. of Finance v. Taylor, [1955] A.C. 491
(H.L.) ; Dicey and Morris, Conflicts of Law (10th ed., 1980), Rule 91.
15 As well, questions relating to the construction of a will are
in the ordinary course to be governed by the law of the domicile of
the testatrix at the time she made her will: Dicey and Morris, supra,
Rule 104.
16 Counsel for the Canadian executor has submitted that on the
facts the testatrix was domiciled in Ontario at the time of the making
of the will and accordingly, the law of Ontario should govern the
construction of the will: Wadsworth v. McCord [1886] 12 S.C.R. 466 ,
affirmed (1889), 14 App. Cas. 631 (sub nom. McMullen v. Wadsworth)
(P.C.); Succession Law Reform Act, R.S.O. 1980, c. 488, ss. 35 and 39.
17 All parties to this application concede that Ontario law should
govern the construction of para. 2(b) of the Canadian will which
contains the direction under review.
18 It is a general rule of construction that where a will contains
a direction for payment of taxes, duties or similar levies such
direction is to be construed as referring only to taxes and duties
payable in the domestic jurisdiction unless the attendant
cir***stances are sufficiently compelling to warrant the extension of
the primary meaning of that direction so as to include taxes and
duties imposed by the laws of a foreign jurisdiction; in Re Norbury;
Norbury v. Fahland [1939] Ch. 528 ; Butler v. Southam, [1908] 2 Ch.
365, 99 L.T. 517 ; in Re Cunliffe-Owen; Mountain v. Comber, [1951] Ch.
964 ; in Re Goetze, [1953] Ch. 96 (C.A.) .
19 Counsel for the Scottish executors has submitted that the words
in para. 2(b) of the Canadian will are broad enough to include the
requirement of the payment of foreign duties and taxes out of the
Canadian estate including the tax potentially leviable under the
United Kingdom statute. He relies chiefly on the precedent of Re
Gibbins, Royal Trust Co. v. Christ Church Cathedral Bldgs. Ltd., 17
W.W.R. 137, [1955] 5 D.L.R. 553, 56 D.T.C. 1001 (B.C.S.C.) in sup****t
of his contention. That case stands for the proposition that where the
testator's words are clear and are wide enough to include the payment
of foreign duties and taxes out of the domestic estate then effect
should accordingly be given to the testator's intention. Some detailed
discussion of the facts in Re Gibbins, supra is warranted.
20 I shall quote from the reasons of Whittaker J. at pp. 138-139
[W.W.R.] so as to indicate the essential facts and the provision of
the will with which he was concerned.
The testator died on February 19, 1954, domiciled in British Columbia.
On May 15, 1930, he transferred certain property to the Royal Trust
Company as trustee in trust to pay the income to himself and his wife
and after the death of both in trust for his children. This trust will
hereinafter be referred to as the 'separation trust.'
By deed of settlement dated June 15, 1934, the testator assigned to
the public trustee (for England) all his share in the estate of his
father in trust as to income for himself and his children and after
his death as to capital for his children. This settlement will be
hereinafter referred to as the 'English settlement.'
The will is dated December 10, 1936. After the customary clause
revoking former wills the testator appoints the plaintiff herein
executor and trustee and devises and bequeaths all his property to the
trustee in trust to convert the same into money and with and out of
the proceeds of conversion to
pay my funeral and testamentary expenses and debts and the legacies
(if any) bequeathed by this my will or any codicil hereto, and all
duties payable in respect of my death, whether legacy duty, succession
duty, estate duty, probate duty or other duty now in force or at any
time before my death imposed, and shall stand possessed of the residue
of said moneys upon trust for the Christ Church Cathedral Buildings,
Limited
The Canadian Government have *****sed succession duties against the
assets comprised in the separation trust and the English settlement,
and the Government of Great Britain have *****sed duties against the
assets comprised in the English settlement.
The main question for determination is whether the testator intended
that duties *****sed against the assets of the separation trust and
the English settlement should be paid by the donees under those
settlements or out of the estate disposed of by his will.
21 Whittaker J. ruled that duties *****sed under both settlements
should be paid by his executor out of assets passing under the will
being construed by him. The basis of his ruling was that the words
"pay ... all duties payable in respect of my death" were wide enough
to include duties imposable by the foreign jurisdiction. The other
reason for his so ruling was that the will had made no provision for
the testator's two children. Since each of them were interested in the
two settlements it was unlikely that the testator intended that the
provision he had made for them in these settlements should be
diminished to the extent of Canadian and English duties.
22 I interpret the decision of Whittaker J. in Re Gibbins, supra,
to be restricted to the specific words in the direction that he had to
consider. The key words of that direction, in my opinion, are "and all
duties payable in respect of my death". These words do not limit the
scope of that duty to any specific assets.
23 By way of contrast to the will considered by Whittaker J., the
words of the direction contained in the Canadian will of the late
Hannah Lake Fudger use the limiting words "in connection with any
property passing under this my will". When these words are considered
together with the opening paragraph of the Canadian will, which limits
the scope of that will "to all my real and personal estate in the
Dominion of Canada", it can be seen clearly, I hope, that the
testatrix did not expressly intend to impose upon her Canadian
executor the duty of paying duties other than duties in connection
with any property passing under the Canadian will.
24 The wording of the direction contained in the Canadian will as
to the payment of duties is clearly distinguishable from the wording
in the will considered by Whittaker J. in Re Gibbins, supra, and is
not sufficient in and of itself to displace the general rule of
construction regarding a direction to pay duties.
25 Counsel for the Scottish executors submitted that to give such
a construction to the words of para. 2(b) would frustrate the obvious
intention of the testatrix. She obviously intended to benefit the
Scottish charity in her Scottish will. But if the taxes demanded by
the CTO are not paid by the Canadian executors out of the Canadian
estate and the CTO seizes (perhaps confiscates would be a more apt
term) the Scottish estate as a consequence, then her intention to have
benefited the Scottish charity would have been frustrated.
26 Counsel for the Scottish executors compared the wording of the
Canadian and the Scottish wills in sup****t of the construction which
he sought for the words of para. 2(b). He noted that the Canadian will
instructs the trustee to pay "my just debts, funeral and testamentary
expenses and all estate, inheritance and succession duties or taxes
that may be payable in connection with any property passing under this
my will". He noted that the Scottish will, on the other hand, makes no
reference to estate, inheritance and succession duties or taxes, and
as a burden on the estate, provides only for "payment of all my debts,
funeral expenses and the expenses of winding up this Executry". Since
the capital taxes to be imposed under the United Kingdom taxing
statute, are taxes on the passage of the testatrix's entire estate,
which includes the Canadian estate (under the provisions of that
United Kingdom statute), and since only the Canadian will speaks to
the payment of estate, inheritance and succession duties or taxes,
counsel for the Scottish executors submits that the testatrix must
have intended that the United Kingdom taxes be paid out of the
Canadian estate.
27 With respect, in my opinion, the testatrix clearly demonstrated
an intention that each set of assets and liabilities should be dealt
with separately and distinctly. She made a will in Canada. She made a
separate will in the United Kingdom. The assets disposed of in each
will were limited to those which lay in each respective jurisdiction.
Different executors were appointed for each. Different individuals or
entities were benefited in each.
28 The assets which pass under the Canadian will are not property
passing under the Scottish will. Therefore, the testatrix intended, in
my opinion, to restrict the direction to pay estate, inheritance and
succession duties or taxes in the Canadian will to property passing
under the Canadian will. Such direction cannot be construed to include
a direction to pay a tax imposed under a foreign tax statute such as
the Finance Act, 1975 (U.K.). The testatrix clearly intended to
divorce the testamentary administration of her Canadian assets from
that of her Scottish assets.
29 There is another reason to reject the position put forward on
behalf of the Scottish executors: to do so would offend the well-
settled rule of law that the Courts of Canada will not entertain an
action for enforcement of the revenue laws of a foreign state: U.S.A.
v. Harden, [ 1963] S.C.R. 366, 44 W.W.R. 630, 63 D.T.C. 1276, [1963]
C.T.C. 450 (S.C.C.) .
30 Any claim made by CTO for payment of tax against the Canadian
executor is not provable or enforceable in Ontario. To construe the
Canadian will in such a way as to require the Canadian executor to pay
foreign taxes simply because a foreign beneficiary under a foreign
will might otherwise be exposed to the payment of taxes imposed in the
foreign jurisdiction, would be an indirect method of enforcing the
revenue laws of the foreign jurisdiction.
31 The answer to the question made on this application is
therefore "no".
32 The matter of costs was canvassed at the hearing. The executor
is entitled to the costs of this application as on a solicitor and
client basis. The costs of the Canadian beneficiaries are allowed on a
party and party basis. Such costs should be paid out of the estate.
While counsel for the executor in its personal capacity attended upon
the hearing, he withdrew at such time as the second and third
questions posed in the notice of motion were withdrawn. Therefore, no
consideration of costs for that counsel is needed. Counsel for the
Scottish executors, as previously indicated, did appear and make
submissions. I am perplexed as to whether I can award that counsel
costs payable out of the Canadian estate.
33 The Scottish beneficiaries are not beneficiaries of the
Canadian estate and of course, they are not its administrators. What
right would I have to award them costs on any basis as a claim on the
Canadian estate? They have acted properly in coming before this Court
to argue the issue. In doing so however, they acted in their capacity
as Scottish executors. In that capacity they owed a duty to the
Scottish beneficiaries to attempt to secure from the Canadian estate
payment of taxes potentially leviable under the United Kingdom
statute. In that way, they hoped to preserve the assets of the
Scottish estate for the benefit of the Scottish beneficiary.
34 I assume that the Canadian executor asked that the Scottish
executors be represented on the motion. I propose to defer the
question of whether costs can be allowed to counsel for the Scottish
executors. In the event that the Canadian beneficiaries, through their
counsel, consent to the payment of a counsel fee on the application on
a party and party basis to the Scottish executors this issue can be
avoided. I would then be inclined to order costs on a party and party
basis to be paid to the Scottish executors out of the Canadian estate.
In the absence of such consent, I request written submissions from
counsel for the executor, counsel for the Canadian beneficiaries and
counsel for the Scottish executors on the issue of whether I can allow
costs to the Scottish executors.
Order accordingly.
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