ARCHER-SHEE, APPELLANT;
AND
GARLAND, RESPONDENT
[HOUSE OF LORDS.]
[1931] AC 212
HEARING-DATES: 15 December 1930
CATCHWORDS:
Revenue - Income Tax - Foreign Possessions - Trust Fund - Foreign
Trustees - Rights of Beneficiary under foreign Law - Income Tax Act,
1918 (8 & 9 Geo. 5, c. 40), Schedule D, Case IV., Case V., rr. 1, 2.
HEADNOTE:
A testator, a subject of the United States, directed that his
residuary estate should be held upon trust to dispose of the income
thereof to the use of his daughter (now the wife of the appellant)
during her life. The testator's residuary estate consisted wholly of
foreign securities and foreign stocks and shares, and the existing
trustees were an American trust company.
The appellant appealed against *****sments to income tax made upon him
in respect of his wife's income arising from the will under Case IV.
and Case V., r. 1, as being income arising from foreign securities,
stocks and shares, and chargeable to tax, whether received in the
United Kingdom or hot, and claimed that, by reason of the
interposition of the title of the trustees, it should be *****sed
under Case V., r. 2, as being a foreign possession other than stocks
and shares and chargeable only to the extent to which it was remitted
to the United Kingdom. The *****sments were ultimately upheld by the
House of Lords upon the assumption that the American law was the same
as the law of England: Baker v. Archer-Shee [1927] A. C. 844. Upon an
appeal by the appellant against further *****sments to income tax made
upon him in respect of the same income for the three succeeding years,
expert evidence was adduced as to the law of the United States to the
effect that under that law the wife had no estate or interest in the
securities, stocks or shares, but that her sole right was to compel
the trustees to discharge their duties under the will:-
Held, as the result of this evidence, that the income in question was
*****sable under Case V., r. 2.
Decision of the Court of Appeal reversed.
INTRODUCTION:
APPEAL from an order of the Court of Appeal reversing a judgment of
Rowlatt J. upon a case stated by the Commissioners for the Special
Purposes of the Income Tax Acts.
Under the will of Alfred Pell, a citizen of the United States, who
died in 1901, the testator's residuary estate was directed to be held,
in the events which happened, to apply the whole
income thereof to the use of his daughter Frances (now the wife of the
appellant) during her life.
The trust fund consisted entirely of foreign securities and foreign
stocks and shares.
The sole trustee of the will was the Trust Company of New York, a
company resident in the State of New York.
The appellant appealed against *****sments to income tax made upon him
under Case IV. and Case V., r. 1, of Schedule D, in respect of the
income coming to his wife under this will for the two years ending
April 5, 1925, on the ground that the income in question was not
income arising from securities, stocks or shares owing to the
interposition of the title of the trustees under the will and that the
income was therefore chargeable only under r. 2 of Case V. as being
income from foreign possessions other than stocks and shares and to
the extent only to which such income was remitted to the United
Kingdom.
The Special Commissioners dismissed the appeal and their decision was
affirmed by Rowlatt J.
The Court of Appeal (Lord Hanworth M.R., Warrington and Sargant L.JJ.)
reversed the decision of Rowlatt J., but the House of Lords by a
majority (Lord Atkinson, Lord Wrenbury, and Lord Carson; Viscount
Sumner and Lord Blanesburgh dissenting) reversed the decision of the
Court of Appeal and decided that the income in question was income
coming to the appellant's wife from foreign securities, stocks or
shares, and was chargeable to income tax whether remitted to the
United Kingdom or not: Baker v. Archer-Shee. n(1)
The appellant was further *****sed in respect of the same income for
the three years ending April 5, 1928, and on appealing to the Special
Commissioners he adduced the evidence of two experts in the law of New
York. The effect of this evidence is stated in the opinion of Lord
Buckmaster. In effect the experts were of opinion that under the
trusts of this will the appellant's wife, according to the law of New
York, had no right to any specific interest or dividends
n(1) [1927] A. C. 844.
at all, but that her right was to resort to a Court of equity to
compel the trustees to discharge the duties imposed upon them by the
will.
The Commissioners held that the differences between the American and
English law proved before them were so great that the decision of the
House of Lords on the previous appeal had no application, and they
decided that the wife's income under the trust must be treated as
derived from the trustees and not from the stocks, shares and
securities, and was *****sable under r. 2 of Case V.
Rowlatt J. affirmed the decision of the Commissioners.
The Court of Appeal by a majority (Lord Hanworth M.R. and Lawrence
L.J.; Greer L.J. dissenting) reversed the decision of the learned
judge on the ground that the American law and the rights of the
appellant's wife thereunder did not materially differ from the law and
rights on which the majority of the Lords based their opinions in
Baker v. Archer-Shee. n(1)
COUNSEL:
1930. Nov. 18, 20. Latter K.C., Gavin Simonds K.C. and Edwardes Jones
K.C. for the appellant.
Sir William Jowitt A.-G., Sir Stafford Cripps S.-G. and Reginald Hills
for the respondent.
[The following authorities were referred to: Baker v. Archer-Shee
n(1) ; Macfarlane v. Inland Revenue Commissioners n(2) ; Murray v.
Inland Revenue Commissioners n(3) ; Williams v. Singer n(4) ; Drummond
v. Collins n(5) ; Syme v. Commissioner of Taxes. n(6) ]
The House took time for consideration.
1930. Dec. 15.
PANEL: LORD BUCKMASTER, VISCOUNT DUNEDIN, LORD WARRINGTONOF CLYFFE,
LORD TOMLIN, and LORD THANKERTON
JUDGMENTBY-1: LORD BUCKMASTER
JUDGMENT-1:
LORD BUCKMASTER: . My Lords, the appellant is, by General Rule 16 of
the Income Tax Acts, *****sable to income tax in respect of the
profits of his wife. Her father was a citizen of the United States of
America,
n(1) [1927] A. C. 844.
n(2) 1929 S. C. 453.
n(3) 1926 S. L. T. 714; 11 Tax Cas. 133.
n(4) [1921] 1 A. C. 65; 7 Tax Cas. 387: [1919] 2 K. B. 108.
n(5) [1915] A. C. 1011.
n(6) [1914] A. C. 1013.
and under his will, made in New York, she is entitled to receive
during her lifo the income of his residuary estate which is held at
present by the Trust Company of New York as executor and trustee of
the will. Part of such moneys are remitted to this country by the
trustee and about these no question is raised, but part remain in New
York and the liability of the appellant to have these retained moneys
*****sed for income tax is the sole question on this appeal.
The early history of the case and all material facts are to be found
in [1927] A. C., p. 844, which contains the re****t of the decision
when the same dispute as the present was considered by this House
under different cir***stances. The explanation of why, notwithstanding
that decision, this case is again presented to your Lord****ps lies in
the fact that the will of the appellant's father-in-law under which
the property passed was then construed according to English law, and,
so regarded, it was held that the interest of the appellant's wife was
derived from stocks, shares or funds outside the United Kingdom and
therefore by r. 1 of Case V. was *****sable to income tax whether
received here or not. The question as to what might happen if the
American law differed from the English was left open. Such decision
covered the claims up to April, 1925, but since then three *****sments
have been made in accordance with the law then laid down, and these
are the *****sments now in dispute. It is obvious, therefore, for the
appellant to succeed he must show that the American law differs in a
crucial respect from the law of England, and that the former judgment
has accordingly lost its force, and this he now claims to have done.
His contention was accepted by the Commissioners and Rowlatt J., but
not by the Court of Appeal who, with the dissent of Greer L.J., once
more found against the appellant.
To make the point now in issue quite plain it is necessary again to
refer to the statute and the rules.
Under Schedule D. (1.), a tax is charged in respect of -
"(a) The annual profits or gains arising or accruing -
"(i) to any person residing in the United Kingdom from
any kind of property whatever, whether situate in the United Kingdom
or elsewhere."
This general provision is then separated into six different cases
under which the tax is to be charged, the fourth and fifth of which
are the ones relevant to this appeal. They are as follows:-
"Case IV. - Tax in respect of income arising from securities out of
the United Kingdom, except such income as is charged under Schedule C;
"Case V. - Tax in respect of income arising from possessions out of
the United Kingdom."
Except that these two cases appear to overlap, the matter seems so far
clear, but the mists begin to fall when the rules are examined,
"subject to and in accordance with" which the tax is to be charged,
for it is then found that two distinct methods of computation and two
distinct liabilities apply to different cl***** of property under
these two Cases.
It will be noticed that Case IV. applies only to what is called
"income arising from securities," and r. 1 under it provides that the
tax is in that case to be "computed on the full amount thereof arising
in the year of *****sment, whether the income has been or will be
received in the United Kingdom or not," and this differs from the
rules under Case V., which create the present difficulties. The rules
in question are 1 and 2, and their material ****tions are as follows:-
"1. - The tax in respect of income arising from stocks, shares or
rents in any place out of the United Kingdom shall be computed on the
full amount thereof on an average of the three preceding years, as
directed in Case I., whether the income has been or will be received
in the United Kingdom or not, ....
"2. - The tax in respect of income arising from possessions out of the
United Kingdom, other than stocks, shares or rents, shall be computed
on the full amount of the actual sums annually received in the United
Kingdom from remittances payable in the United Kingdom, ... on an
average of the three preceding years as directed in Case I., without
any deduction or abatement other than is therein allowed."
If, therefore, the income in this case is income "arising from stocks,
shares or rents," it must be computed on a three years' average, and
is liable to be taxed whether received in the United Kingdom or no,
but if it is not it is still computed on a three years' average but
only "on the full amount of the actual sums annually received in the
United Kingdom."
It is not for us to inquire into the reason for this change; we assume
a reason to exist, and that it is wise and just. We are concerned only
with whether r. 1 or r. 2 applies. That when this matter was formerly
raised r. 1 applied was determined by this House by Lords Wrenbury,
Carson and Atkinson (Lords Sumner and Blanesburgh dissenting). n(1)
Lord Wrenbury's judgment was expressly concurred in by Lord Atkinson,
who added no further reasons of his own.
It is, therefore, extremely im****tant to see why Lord Wrenbury and
Lord Carson formed this opinion, and the re****t enables this to be
accurately determined. Lord Wrenbury (at p. 866) says: "Lady Archer-
Shee (if American law is the same as English law) is, in my opinion,
as matter of construction of the will, entitled in equity specifically
during her life to the dividends upon the stocks," and on the same
page he repeats this conclusion again made dependent upon the
hypothesis of the identity of the law in the two countries. He there
says: "It is, I think, if the law of America is the same as our law,
an equitable right in possession to receive during her life the
proceeds of the shares and stocks of which she is tenant for life."
Lord Carson (at p. 870) sup****ts the same opinion in these words:
"Upon the construction of the will of Alfred Pell once the residue had
become specifically ascertained, the respondent's wife was sole
beneficial owner of the interest and dividends of all the securities,
stocks and shares forming part of the trust fund."
Now the construction of the will was there the construction according
to English law, the principles and effect of which had been enunciated
by Lord Wrenbury. This opinion was not in accordance with that of Lord
Sumner, who sup****ted
n(1) [1927] A. C. 844.
the judgment of Sargant L.J. in the Court of Appeal where adopting the
view and the language of Rowlatt J. he said this n(1) : "'What this
lady enjoys is not the stocks, shares and rents or other property
constituting the trust fund under the will; what she has is the right
to call upon the trustees, and, if necessary, to compel the trustees
to administer this property during her life so as to give her the
income arising therefrom according to the provisions of the trust. Her
interest is merely an equitable one, and it is not an interest in the
specific stocks and shares constituting the trust fund at all.'"
This was the opposite view to that held in this House, and it was
because it was decided that it did not define accurately Lady Archer-
Shee's position under the will according to English law that the
decision was given in favour of the Crown.
The evidence of two American lawyers has now been given in the matter
on behalf of the appellant and no one has been called to contradict
their statements.
Mr. Richard Powell, a Professor of Law at Columbia University Law
School in the City of New York, stated that the provision of the law
which directs who shall hold and own the property of a trust was as
follows: "Every express trust valid as such in its creation, except as
herein otherwise provided, shall vest the whole estate in the trustees
in law, and in equity, subject only to the execution of the trust
period. The persons for whose benefit the trust is created shall take
no estate or interest in the lands, but may enforce the performance of
the trust in equity."
This provision, although it relates in terms only to lands, had been
held to be equally applicable to personal property, and again he said
"that Lady Archer-Shee had no right to any specific dividends or
interest at all," and he explained her rights in these words: "While
it was true that under the trust in question (there being no provision
for ac***ulation) the whole of the net income (including in the event
of death any income accrued but not paid over) must
n(1) [1927] 1 K. B. 109, 128.
ultimately be either paid over to or applied for the benefit of Lady
Archer-Shee, the manner and times of doing so were within the
discretion of the trustees subject to judicial supervision; that if
the trustees exercised their discretion unconscientiously, Lady Archer-
Shee had the right to ask the Court to supervise their behaviour in
the matter both of the management of the income and of the capital of
the Trust."
This opinion was confirmed by a member of a legal firm of old standing
in New York, and is uncontradicted.
The Master of the Rolls thinks that the latter part of the statement I
have quoted "in essentials appears to accord with the statements" of
Lord Wrenbury. The same question often presents itself to different
minds under different aspects; to my mind the statement which must be
taken with the other words I have quoted differs in every essential
from Lord Wrenbury's views. At its highest it does no more than
express what Sargant L.J. thought, but erroneously, was the English
law, and it was this that Lord Wrenbury rejected.
I cannot reconcile the statement of the American lawyer that Lady
Archer-Shee had "no right to any specific dividends or interest at
all" with the statement of Lord Wrenbury that she was "entitled in
equity specifically during her life to the dividends upon the stocks."
Nor, again, can I reconcile the statement that she took "no estate or
interest" in the funds, though she might enforce the performance of
the trust in equity with the statement of Lord Carson that under
English law she was sole beneficial owner of the interest and
dividends of all the stocks and shares.
In my opinion the difference between the two systems of law cannot be
better explained than by contrasting the judgments of Lords Sumner and
Blanesburgh in the House of Lords, and that of Sargant L.J. in the
Court of Appeal with that of Lords Wrenbury, Carson and Atkinson which
there prevailed. These former learned judges were held to have
imperfectly enunciated the English law, but they have
expressed with perfect clearness what we now know is the Amercian law,
which is the law we are bound to apply.
This to my mind ends the case, but the Attorney-General pressed on us
with such insistence the case of Williams v. Singer n(1) that I feel
some comment is necessary.
In that case the trustees of an English settlement were domiciled in
this country, but the tenant for life was a French subject by marriage
and domiciled abroad.
The income of the settled fund was paid under orders of the trustees
direct to the tenant for life at a bank in New York.
In those cir***stances *****sments were made on the trustees, and
these *****sments were set aside by this House. One sentence from the
judgment of Lord Cave L.C. will serve to show how little to the
present purpose is the consideration of that authority. He says, p.
72: "The object of the Acts is to secure for the State a pro****tion of
the profits chargeable, and this end is attained (speaking generally)
by the simple and effective expedient of taxing the profits where they
are found. If the beneficiary receives them he is liable to be
*****sed upon them. If the trustee receives and controls them, he is
primarily so liable." The case of Syme v. Commissioner of Taxes n(2)
again is no assistance. The tax was there *****sed upon income
"derived by any person from personal exertion," and this was by the
statute declared to include "income arising or accruing from any
trade" although not arising from the taxpayer's own personal exertion
or trade. Under the provisions of a will trustees carried on a
business and paid the appellant one-fifth of the profits, and on these
the tax was held duly *****sed under the provisions already quoted. It
is rarely profitable to attempt the interpretation of one statute by
another, and in this case the mere comparison of the language shows it
to be useless. The former decision in the case shows that an absolute
owner****p of the stocks, shares and dividends is not necessary; a
limited owner****p is sufficient to satisfy the rule, but it shows also
that such owner****p must be specific
n(1) [1919] 2 K. B. 108; [1921] 1 A. C. 65.
n(2) [1914] A. C. 1013.
in relation to the subject, and the opinion on which we are bound to
act shows that is not the true position of Lady Archer-Shee. For these
reasons I think this appeal should be allowed.
JUDGMENTBY-2: VISCOUNT DUNEDIN
JUDGMENT-2:
VISCOUNT DUNEDIN: . My Lords, the first and indeed crucial point of
this case is to make up one's mind as to what was the true ratio
decidendi in the former case as to the same source of income in this
House, for by that decision we are bound. I think the ratio decidendi
very clearly appears by comparing the judgment of Viscount Sumner, who
was in the minority, with the majority judgment which prevailed.
Viscount Sumner thought that the specific property in the stocks,
shares, securities, and other investments which formed the trust fund,
was in the hands of the trustees, and that accordingly what the
beneficiary in this country got was what came to her from a foreign
possession - namely, her right to get the trustees to make payment to
her of the balance of the income. That view was rejected by the
majority on the view that there was in the beneficiary a specific
equitable interest in each and every one of the stocks, shares, etc.,
which formed the trust fund, and that the case fell either under Case
IV., or, in so far as the funds consisted of stocks and shares, under
r. 1 of Case V., and they remitted the case to find out the exact
constituents of the fund. That case was decided without inquiry as to
the law of New York. It is obvious that the judgment of the majority
turns upon an assumption that the law of New York is what they
declared the English law to be.
Now, in the present case, the law of New York has been inquired into,
and we have heard the testimony of the lawyers examined. In face of
that testimony it seems to me quite an impossibility to hold that,
according to that law, there is a specific equitable interest in the
beneficiary in each parcel of securities, stocks, etc. The interest of
the beneficiary is just what Viscount Sumner thought it was in the
former case. Accordingly I think the appeal must be allowed and the
judgment of Rowlatt J. restored, for the income of
Lady Archer-Shee is drawn from a foreign possession and falls under r.
2 of Case V.
JUDGMENTBY-3: LORD TOMLIN
JUDGMENT-3:
LORD TOMLIN: (read by
JUDGMENTBY-4: LORD THANKERTON
JUDGMENT-4:
LORD THANKERTON: ). My Lords, the answer to the question which falls
to be determined on this appeal depends in my opinion first upon the
effect of the decision in your Lord****ps' House in Baker v. Archer-
Shee n(1) , and secondly, upon the conclusion as to American law to be
drawn from the evidence of the American lawyers.
I do not think it can be doubted that the majority of your Lord****ps'
House in the former case founded themselves upon the view that
according to English law (with which, in that case, American law was
assumed to be identical) the appellant's wife had a property interest
in the income arising from the securities, stocks and shares
constituting the American trust, and that but for the existence of
that supposed property interest the decision would have been
different.
The evidence upon American law adduced before the commissioners in the
present case contains statements to the effect that the whole estate
in law and in equity in the trust funds is vested in the trustees, and
that the words of the trust give to the appellant's wife merely the
right to resort to a Court of equity to compel the trustees to
discharge the task imposed upon them, which was to apply the money
which they receive as a net income from the trust to her use, that
they have within the limits of reasonable and conscientious behaviour
an absolute discretion as to the application of the income for her
benefit, that if they decided to apply the money for her benefit
instead of paying it over they must exercise the power to do so
reasonably, and that she had no right to any specific dividends or
interest at all.
In the face of these statements I think the finding of fact must
necessarily be that according to American law the appellant's wife has
no property interest in the income arising from the securities, stocks
and shares constituting the trust fund but has only a chose in action
available against the trustees.
n(1) [1927] A. C. 844.
Applying the principle of the previous decision of your Lord****ps'
House to the case with the fact as to American law found as I have
indicated it should in my opinion be found, I reach the conclusion
that the *****sable income, the subject of the appeal, is income
arising from a possession out of the United Kingdom other than stocks,
shares or rents - namely, a chose in action available against the
American trustees - and that the *****sment should be made not under
Case IV. and Case V., r. 1 of Sch. D, but under Case V., r. 2, of that
Schedule.
The appeal therefore in my opinion succeeds.
JUDGMENTBY-5: LORD THANKERTON
JUDGMENT-5:
LORD THANKERTON: . My Lords, I concur in your Lord****ps' opinion.
JUDGMENTBY-6: LORD BUCKMASTER
JUDGMENT-6:
LORD BUCKMASTER: . My Lords, my noble and learned friend Lord
Warrington of Clyffe has asked me to say that he agrees with the
judgment which I have read.
DISPOSITION:
Order of the Court of Appeal reversed and judgment of Rowlatt J.
restored. The respondent to pay the costs in the Court of Appeal and
also the costs of the appeal to this House. Cause remitted back to the
King's Bench Division to do therein as shall be just and consistent
with this judgment.
Lords' Journals, Dec. 15, 1930.
SOLICITORS:
Solicitors for the appellant: Lewis & Lewis.
Solicitor for the respondent: Solicitor of Inland Revenue.
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