Jekyll v Commissioner of Stamp Duties

High Court of Australia|1962-07-01|Before: Kitto JJ, Stable J

High Court of Australia Dixon C.J. McTiernan and Kitto JJ. Jekyll v Commissioner of Stamp Duties (Q) [1962] HCA 9

This is an appeal from an order of Stable J. whereby he dismissed a petition by executors by way of appeal from an assessment of succession duty and an assessment of probate duty under The Succession and Probate Duties Acts, 1892 to 1955 of Queensland. The executors are those of the estate of George Ernest Jekyll deceased, a retired grazier who died on 31st December 1955 at Dalby in Queensland, leaving a will executed shortly before his death which has been admitted to probate. The question at issue is the value to be adopted for certain shares of which he died possessed. The shares were 1% first non-cumulative preference shares of £1 each fully paid in a company called New Bon Accord Pty. Ltd. The number of shares of this description which he held was 154,574. The executors placed a value of two shillings a share upon them for the purpose of assessment but the respondent Commissioner adopted a value of nineteen shillings a share. He did so in the purported exercise of the discretion conferred upon him by the last paragraph of s. 47 of the Act but he says that however you proceed to value the shares it will be found that nineteen shillings is not an excessive amount.

The company, New Bon Accord Pty. Ltd., was incorporated in Queensland as a private company on 1st September 1955. New Bon Accord is the name of a property near Dalby of about 7,353 acres. On that day the company purchased it from him for £143,680. The company issued to him 154,574 1% first non-cumulative preference shares. The transactions were carried out by the exchange of cheques but in effect the shares satisfied the price and as will be observed more than satisfied it. The balance in the paid-up amount of the shares was covered by a slightly later transaction into which it is unnecessary to enter. One ordinary share fully paid up for which he applied was issued to him and this he advised the company was held by him in trust for George William Jekyll, a grandson whose father had been killed on service. The deceased's wife, Lilian Olive Jekyll, subscribed the memorandum of association for one 1% second non-cumulative share. His surviving son, whose name is Norman Donaldson Jekyll, is one of the executors. He subscribed the memorandum for the one ordinary share. It is fully paid up. The foregoing constituted the issued capital of the company.

An article of association empowered the directors to attach special rights to shares but the status of the two classes of preferential shares was defined by the articles themselves. The 1% first non-cumulative preference shares are to confer rights and privileges which may be summarized as follows. There is a preferential dividend of 1% but the resolution declaring the dividend may declare a dividend on the 1% second non-cumulative preference share. Then there was a right, during the period up to the day before the death of the original owner of the share, to such further preferential dividend as might be declared by the company on the recommendation of the directors. The deceased was of course the original owner of the shares and as he was appointed by the articles permanent governing director during his life and all the powers of the directors (subject to delegation) were vested in him, this meant in effect a right while he lived, or more strictly until twenty-four hours before his death, supposing that he remained a director, to such further preferential dividends as he might sanction. Lastly there was a preferential right to a repayment of paid up capital on a winding up. The 1% second non-cumulative preference shares, only one of which was issued and that one to the deceased's wife, Lilian Olive Jekyll, conferred rights which shortly stated amounted to these: First, a preferential dividend of 1% on the amount paid up on the share subject to the company's declaring (as afore-said) a dividend on the second preference shares wholly or partly in priority to the first preference shares. Second, a right to any preferential dividend that may be declared in priority to all other shares (other than the 1% first preference shares unless the resolution declaring the dividend shall otherwise determine). Thirdly, if at the death of the deceased Lilian Olive Jekyll remained (as in fact she did) the registered holder of the shares then while she so holds them she is to receive as a dividend such dividend as with her income from other sources would make up £2,000 per annum, a right which was to cease on the day before the death of the original holder of the shares, viz. the death of Lilian Olive Jekyll. Lastly, the second preference shares were to be entitled to rank for payment off of capital paid up in priority to all other shares in the capital except the 1% first preference shares but with no right further to participate in profits or assets.

Transfer of shares was restricted that is except to the deceased during his lifetime or to his wife or to any person who is a descendant of both of them. The restrictions are of the familiar type founded upon the idea of first authorizing the directors to sell to a member of the company at the auditor's valuation and ending with the ultimate necessity of the directors' approval. It is unnecessary further to go into the restrictions. What is perhaps of more importance is that the voting rights are restrictively defined. Preference shares are not to give any voting rights or powers except to the original holder, which means in the case of the first preference shares the deceased, George Ernest Jekyll, and in the case of the second preference shares the holder of the only one issued, his widow Lilian Olive Jekyll. That means that as things now stand only the two ordinary shares and the one second preference share carry voting rights. On a poll each of these shares carries one vote. While he lived the shares the deceased held entitled him according to an express provision to 76 per cent of the voting power of all shares represented at a meeting and the remaining shares entitled the holders between them to 24 per cent. At a general meeting the quorum is to be two members personally present and holding or representing by proxy not less than one tenth of the share capital for the time being issued. If Henderson v. Louttit & Co. [1] is to be followed it would appear that both members, in order to form a quorum, must be entitled to vote. It is in view of the incidents of the 1% first non-cumulative preference shares that the executors claim that they possessed no greater value than two shillings each at the death of the deceased. The appellant executors say that there are two recognized bases of value, namely, on the one hand the value which a hypothetical purchaser might be supposed to give in order to acquire the share so that he might enjoy in the first place the return from the share which it might provide in the form of income, in the second place any possible profit on a resale and in the third place the possible though ultimate capital return on a winding up, and on the other hand the value ascertained by computing the capital return which an immediate liquidation would provide, and say that the Commissioner has taken the latter. This basis, say the executors, cannot be sustained except in a case where a liquidation is likely or could be forced or secured. In the present case it could not be forced, is not in contemplation and would be an extreme and unlikely course.

There is no doubt that what must be valued is not the right taken by way of succession but the property to which there is a succession. By the deceased's will his property passed to his executors who were directed to hold it upon various trusts prima facie requiring a conversion: there were no specific bequests of the shares, but the executors or trustees were authorized to retain property in the same state of investment. The beneficiaries under the will are the deceased's grandson already mentioned or, should he not attain full age, his mother, the deceased's surviving son and in default of the latter his children. But the testamentary dispositions are not material: what is in question is the value of the shares as at the death of the deceased. At his death they ceased to carry any voting power. They would bear a dividend of one per cent. Yet the holders could not force an immediate liquidation.

The case must depend to no small extent upon the application of the last paragraph of s. 47. That section is composed of that and four earlier paragraphs with little logical relation to the last except that they all touch in some way the process of assessment. The last paragraph says in terms: "The Commissioner may, in his discretion, adopt as the value of any shares or stock in any company or corporation such sum as, in the opinion of the Commissioner, the holder thereof would receive in the event of the company being voluntarily wound up on the date when the succession took effect." There is more than one remark to make about the form of this provision before going to its substance. It is perhaps not an important matter but it should be noticed that the hypothesis demanded by the last words in their application to a case such as this is that a resolution is adopted for a voluntary winding up on the day on which the deceased dies. Next it is to be noticed that there are two discretionary judgments specified. First, there is the discretion to adopt what may be called the liquidation or assets value as the value of the shares. Second, there is the formation of an opinion as to what that is in terms of money. Another point to be observed about the paragraph is that it is expressed to confer these discretions upon the Commissioner of Stamp Duties. How far these discretions are individual to him and how far on appeal they are transmitted to the Supreme Court has been a question. In Commissioner of Stamp Duties (Q.) v. Beak [1] the question arose whether it was possible to review in substance an exercise by the Commissioner of his power under s. 47 of forming an opinion as to the sum which the holder would receive in the event of a winding up on the date of the succession or in other words determining the value. A very general appeal from an assessment to the Supreme Court is given by s. 50 of the Act. In Beak's Case [1] it was necessary to decide whether on such an appeal the Supreme Court could examine for itself the correctness of the amount which the Commissioner had fixed or was limited to inquiring whether the Commissioner had exercised according to law his discretion in forming his opinion. The following passage in the judgment of the Court disposed of the question: "The Commissioner adopted a value of £32 10s. 0d. each for the shares in the company belonging to the deceased. E. A. Douglas J. found the value to be £25 a share, and his finding is not attacked. The contention of the Commissioner is that the appeal given by s. 50 does not extend to enabling the Court to review the value adopted for shares by the Commissioner in the exercise of the discretion conferred by the last paragraph in s. 47. But this paragraph, although occurring at the end of the section, gives a power to be exercised in making the assessment under the earlier words. That assessment is subject to appeal under s. 50. Clear words would be needed to withdraw from the general power of review given by s. 50 a particular process in making up the assessment essential to the result. A reference to discretion and opinion is not enough for the purpose. The function of valuation is performed by means of discretion and opinion, and it is because as between the Crown and the subject a judgment of an officer of the revenue should not be conclusive that an appeal is given. Section 50 governs the whole assessment made under s. 47" [1] . This view was approved and applied in relation to similar provisions of the New South Wales legislation in Commissioner of Stamp Duties (N.S.W.) v. Pearse [2] . It appears to follow that the exercise by the Commissioner of his discretion to adopt as the value of shares such sum as the holder would receive upon a winding up is in the same position. The judge of the Supreme Court before whom an appeal comes may review the exercise of the discretion as part of the appellate process under s. 50 and his power to do so is not confined to considering whether the Commissioner acted according to law; that means in effect he is not confined to considering whether the Commissioner did not proceed on irrelevant grounds or travel outside the scope and purpose of the discretion or otherwise permit the intrusion of unlawful considerations or, on the other hand, exclude considerations he was bound to take into account. In other words the judge should consider whether the discretion had been soundly exercised in substance. The result is that upon the appeal before this Court the executors may attack the propriety or soundness of the view that the shares should be valued under the provision, that is that it was a suitable case for invoking the provision. The question must be considered as on the day of the death of the deceased and on the footing that he is dead. His death meant that the first preference shares had come to bear an annual income of one per cent on the paid-up value and to command a share in capital if a winding up occurred or other means of obtaining the capital represented by the shares were found. They carried no vote and conferred no means of forcing a winding up, at all events as of right. On the other hand the control of the company depended upon the other three shares issued. Let it be supposed that the value of the first preference shares is to be determined by establishing a buyer willing to purchase as an assumed person, an automaton equipped with relevant knowledge, due qualities of prudence and yet desirous of buying. How far would he go to obtain the shares? At what point would the assumed desire of the executors to sell be brought to a willingness to accept the price? Obviously a complicated situation faces these hypothetical reasoners. On the one hand it is a proposal to acquire property showing a very low annual return and a proportionate right to capital which while full may be unrealizable for a very long time. On the other hand there are the persons entitled to the other three shares. They have a strong interest, as it would appear on the assumptions which must be made, in excluding strangers from membership of the company. In strictness under the articles of association they control the company; for in virtue of their shares they command the voting strength and the distribution of the profits which ex hypothesi will not, except at their instance or with their consent, include more than one per cent upon the first preference capital. But ownership by strangers of the first preference capital gives the strangers an ultimate right to a proportionate share in the capital and that is necessarily represented by the land bearing the company's name and by some other assets. They cannot be excluded from the body of persons whence the hypothetical purchaser is to be drawn. He may be rightly described for the purposes of the law as "an intellectual automaton without any sentiment" (cf. per Cussen J. in Melbourne Tramway and Omnibus Co. Ltd. v. Tramway Board [1] ), but his intellectual equipment will include a full knowledge of the position which would arise in a company constituted as this one is if a large body of shares with an extremely low yield were left to fall into the hands of strangers. When all the complications of the situation are looked at and all the difficulties of assessing any value that can be reasonably justified on some other footing, the case does seem one where sound reasoning authorizes a resort to a value based upon the assets-backing. To apply the last paragraph of s. 47 seems indeed to do exactly what the legislature contemplated in adopting that provision.

(1931) 46 C.L.R. 585. 2. (1931) 46 C.L.R. 585. 3. (1931) 46 C.L.R., at p. 597. 4. (1953) 89 C.L.R. 51, at pp. 57-62 (P.C.). 5. [1917] V.L.R. 472, at p. 481.

On the whole the view of the Commissioner and of Stable J. appears to be correct and the appeal should be dismissed.

I agree in the order proposed by the Chief Justice and in his reasons and I have nothing to add.

I am of the same opinion. The Commissioner is given by s. 47 a discretionary authority to adopt as the value of shares the sum which the holder would receive in a voluntary winding up on the material date. The discretion is conferred in general terms. No rules or principles are laid down by which it is to be governed and no limit is expressly placed upon it. But limits are implied none the less. It is obviously not the intention that a liquidation value shall be adopted whenever and merely because its adoption would benefit the revenue. An honest attempt to apply sound sense and reasonable judgment is inherent in the very notion of the adoption of a sum as the value of property in the assessment of duties by a responsible officer of government who is charged (as the Commissioner is charged by s. 11) with the care and management of the duties, and whose assessments, including necessarily the exercise of the discretion, are made subject to judicial review. The unexpressed but plain assumption is that between the liquidation basis of valuation and other possible bases a choice will be made on sensible grounds and with a concern for fairness.

We are concerned here with a case in which such attraction as the relevant shares might have had for a potential purchaser must have lain chiefly in the right to participate in an ultimate distribution of assets rather than in the right to dividends. In all the circumstances of the case, it seems to me that the implied limits of the statutory discretion are duly observed, and the most satisfactory mode of treating the shares for duty purposes is adopted, when a decision is made to value the shares at their due proportion of the value of the property which the whole body of shareholders at the relevant date left invested in the company instead of dividing amongst themselves as they might by mutual consent have done. In my opinion the Commissioner, and Stable J. on appeal, were justified in exercising the discretion as they did, and the appeal should therefore be dismissed.

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