Bakewell v Deputy Federal Commissioner of Taxation (SA) [1937] HCA 11

Bakewell v Deputy Federal Commissioner of Taxation (SA) [1937] HCA 11 - HCA 1937 case summary — Zoe

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thereafter may be made if the property or fund is of such a nature and "so described as to be capable of being ascertained and identified " when it comes into existence (Rodick v. Gandell (1) ; Brice v. Bannister (2); Tailby v. Official Receiver (3); Palmer v. Carey (4): Lush, Husband and Wife, 4th ed. (1933), pp. 459 et seq). Any words which show a clear and definite intention of assigning or charging property or a chose in action for valuable consideration in favour of another constitute an equitable assignment (William Brandt's Sons & Co. v. Dunlop Rubber Co. (5) ). Now the fund out of which the £40,000 was to be provided was capable, when it came into existence, of being ascertained and identified. There was a covenant to pay £40,000 out of that fund to the trustee, and there was a creation of trusts in relation to that sum. It is thus a plain case of an equitable assignment or charge. But, subject to the provision in favour of the wife, the covenantor retained a beneficial interest for himself, and that interest, at all events, must come into the assessment of his estate for the purposes of estate duty. It is contended, however, that the beneficial interest of the wife in the fund must be deemed part of the deceased's estate by force of sec. 8 (4) (e) of the Estate Duty Assessment Act. But the separation deed and the deed made with the trustee completely defined the rights of the parties in the fund, and, as soon as it came into existence, the assignee or chargee took precisely the same right and interest in it as if it had actually belonged to the assignor or had been within his disposition and control at the time the contract was made. The deceased was given, and had, no beneficial interest in the fund. to the extent of the provision made for the wife. It is true that the fund out of which the £40,000 was to be provided came into existence after the determination of the partnership on the death of the deceased. But the assignee's rights were referable to the contract, which operated as an assignment or charge, and gave a good title so soon as the fund came into existence. No beneficial interest passed to the wife from the deceased on or after his decease ; but, so soon as the fund came into existence, equity, treating as done that which ought to be done, fastened upon the

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his decease, which beneficial interest, by virtue of a settlement or agreement made by him, passed or accrued on or after his decease to, or devolved on or after his decease upon, any other person, shall for the purposes of the Act be deemed to be part of the estate of that person so deceased. Now, if the sum of £40,000 be considered entirely free of the annuity up to the time of the deceased's death, then upon that assumption we should think that its assignment would fall within this provision. The assignment was to take effect on the deceased's ceasing to be a partner. Any mode of dissolution would satisfy the condition; but that which took place was by death. The words "passing on death" are wide and include a change of title to a beneficial interest taking place on death (Adamson v. Attorney-General (1) ). The beneficial interest of the widow in the sum would, therefore, pass or accrue to her on the death of the deceased. The instruments by virtue of which this took place fall under the description " agreement," even if they do not come within the statutory definition of "settlement " contained in sec. 3. And we see no reason why so much of them as assigns the £40,000 and declares the trusts on which it is to be held does not come within that definition. But all this is on the assumption that up to the deceased's death the £40,000 had not been subject to the annuity, It is, however, at this point that the greatest difficulty of the case is encountered. Par. e of sec. 8 (4) does not apply except when a beneficial interest passes, accrues or devolves which the deceased had at his decease. The beneficial interest which the instruments confer on the widow is a right to the income during her life or widow- hood up to the amount of her annuity. Did this beneficial interest really pass from the deceased on his death? Up to dissolution the annuity stood charged on the whole of the deceased's share in the profits of the partnership. The deed of separation made the annuity a first charge upon the profits so long as the partnership continued, and even after dissolution, if the business should be carried on for purposes of winding up. The charge was supported by a covenant

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on the part of the other members of the firm that they would, out of the deceased's share of the profits, pay the annuity or so much of it as should not be paid by the deceased. The effect of the charge was to give to the annuitant a then present interest in the deceased's share of profits. The form of the covenants of the deceased and of his co-partners made the profits the primary, or at least the prima facie, source of the annuity. For not only is it a first charge, but it must be paid thereout except to the extent the deceased might pay it. There was thus an appropriation of the income of the deceased's share in the partnership to answer the annuity. It operated as a diminution pro tanto of his beneficial interest in that income. The relation between this diminution of his interest in the profits during his life, on the one hand, and, on the other hand, the beneficial interest in the £40,000 after his death taken by his widow, is better seen, if the nature of the deceased's share in the partnership is considered. His share in the partnership consisted, not of a title to specific property, but of a right to his proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership (Darby v. Darby (1); In re Ritson; Ritson v. Ritson (2); Forbes vy. Steven ; MacKenzie v. Forbes (3); Attorney-General v. Hubbuck (4); Rodriquez vy. Speyer Bros. (5) ). His, or his executors', right to have the assets applied in the payment of debts, to have the surplus ascertained and to receive his share out of it, came to an end when the partners who survived him elected to purchase his share. It was converted into a right to receive the price (Ewing v. Ewing (6)). But, although his rights underwent a change of form, no new beneficial interest came into existence. The share in the partnership in which he was beneficially interested was transformed into a fund arising from its purchase. The deceased had made a disposition of the income of the share to the extent of the annuity. The fund, he had disposed of by appropriating the income of £40,000 thereof to answer the annuity. Does the change from the one to the other involve a passing or accrual to his widow of a beneficial interest in property which

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Judgment (136 paragraphs)

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