Mendes v Commissioner of Probate Duties

(2) Ordered that the final balance of the said estate for the purpose of the payment of probate duty thereon pursuant to the Probate Duty Act 1962 be reduced accordingly from the sum of £190,545 0s. 1d. ($381,090.01) to the sum of £134,824 0s. 1d. ($269,648.01).

(3) Ordered that in the circumstances of this case the amount of the duty together with interest thereon pursuant to s. 27 (1) of the said Act payable on the said final balance of £134,824 0s. 1d. ($269,648.01) is the sum of £33,470 17s. 4d. ($66,941.75) and that accordingly the amount of the duty together with interest thereon pursuant to s. 27 (1) of the said Act payable under and pursuant to the said Act be reduced from £47,800 1s. 5d. ($95,600.14) to the said sum of £33,470 17s. 4d. ($66,941.75).

(4) Ordered that there be repaid by the respondent to the administrators of the estate of George Mendes deceased the amount of £14,329 4s. 1d. ($28,658.41) being the excess of duty paid in conformity with the said assessment together with interest paid in consequence thereof.

(5) Ordered that the respondent pay to the appellant the costs of the appellant in the proceedings before the Supreme Court of Victoria.

III. That the appellant's costs of this appeal and cross appeal be taxed and when so taxed be paid by the respondent to the appellant.

IV. That the parties be at liberty to apply herein as they may be advised.

In respect of the estate of one George Mendes deceased the Commissioner of Probate Duties made an assessment pursuant to s. 11 (4) of the Probate Duty Act 1962 Vict of the duty payable under that Act; and the present appellant, who was a son of the deceased and one of the co-executors of his will, appealed to the Supreme Court pursuant to s. 19. Several questions arose for determination, and Menhennitt J. decided some in favour of the appellant and some in favour of the Commissioner. Against the orders he made, an appeal and a cross appeal are now before this Court.

The appeal challenges first a decision by his Honour that the Commissioner in making the assessment rightly treated as forming part of the estate of the deceased two parcels of shares, one of 20,000 "B" shares and one of 12,750 "B" shares in a certain company. At the death of the deceased all these shares were registered in the name of the son and were the son's beneficially-owned property.

The Commissioner included the shares in the estate as having been, within the meaning of s. 7 (1) (d) (ii) of the Act, property, the subject matter of a gift inter vivos by the deceased, in relation to which bona fide possession and enjoyment had not been assumed by the donee more than three years before the death of the deceased and during the period of three years immediately before his death retained to the entire exclusion of the deceased or of any benefit to the deceased. The shares had in fact never belonged to the deceased, but they had been issued by the company to the son in circumstances which in the Commissioner's view brought into play a provision in s. 7 (2) (b) of the Act whereby, for the purposes of s. 7 (1) (d), shares issued at any time (since 1951) by a company which was "controlled by the deceased" to another person, otherwise than for a full consideration in money or money's worth, are deemed to have been property the subject matter of a gift by the deceased, and the person to whom the shares were issued is not to be deemed to have assumed bona fide possession and enjoyment of the subject matter of the gift so long as the company which issued them was "controlled by the deceased".

The "B" shares were worth at all material times £1 19s. 4d. each but the son paid for them only £1 per share, so that they were all issued to him otherwise than for a full consideration in money or money's worth.

The 20,000 "B" shares were issued in September 1959 which was more than three years before the death of the deceased, and the 12,750 in February 1961 which was less than three years before the death. Immediately before the issue of the former parcel the issued capital of the company consisted of nine ordinary shares of which the deceased held five and the son four. Each retained his ordinary shares throughout the period which ended at the death of the deceased, and no shares of either class were issued in that period except the second parcel of "B" shares issued to the son.

The first question to be decided is whether, within the meaning of s. 7 (2) (b), the company was "controlled by the deceased" immediately before the issue of the 20,000 "B" shares, and the second is whether it was similarly "controlled by the deceased" after the issue of those shares. Both questions must be answered in the affirmative if the inclusion of the 20,000 "B" shares in the dutiable estate is to be supported under s. 7 (1) (d) (ii), but an affirmative answer to the second will suffice to support the inclusion of the 12,750 "B" shares.

Counsel for the appellant was content to allow an affirmative answer to the first question to go without argument, and indeed it seems clear that before the issue of the 20,000 "B" shares in September 1959 the company was "controlled by the deceased", both according to any criterion that could well be suggested in the absence of a definition and according to the criteria which the Act specially provides in sub-pars. (i), (ii) and (iii) of s. 7 (3) (a). It is unnecessary to mention these special criteria in detail. Suffice it to say that in a general meeting each of the nine ordinary shares carried one vote both on a show of hands and on a poll (art. 71), and though the deceased and his son were both directors and there were no others, and although the deceased had no casting vote in the event of a disagreement (see art. 99), his holding of a majority of the issued shares gave him power (under art. 87) to remove his son from the office of director at any time.

But the issue of the 20,000 "B" shares altered the balance of power in respect of the board and in the general meeting of the company, and the appellant contends that in consequence the company was never thereafter "controlled by the deceased". He says first that the special criteria which s. 7 (3) provides for the purposes of s. 7 (2), enacted as they are "without limiting the generality of that subsection", no longer had any application in respect of the company. With this the Commissioner now agrees, and s. 7 (3) may be put on one side. But the appellant says secondly that the expression "a company which was controlled by the deceased", in the natural meaning which it has in the context of s. 7 (2) and which s. 7 (3) preserves, was not satisfied in the situation brought about by the issue of the 20,000 "B" shares. The Commissioner contends, and Menhennitt J. has held, that it was satisfied.

In that situation the deceased still held a majority of the ordinary shares, and each ordinary share carried one vote upon every kind of matter. The "B" shares, however, carried very restricted voting rights, for it was provided by art. 3 (ii) that "B" shares should -

not confer on the holders thereof the right to receive notice of and attend and vote either in person or by proxy at general meetings of the company unless the business of the meeting includes the consideration of a resolution for reducing the capital or for the sale of the undertaking of the company or for winding up the company or any resolution varying or abrogating any of the rights attached to the "B" shares. (The reference to the sale of the undertaking evidently meant a sale of the main undertaking, for it is only such a sale that was subject to the approval of the general meeting: see art. 107.) The better interpretation of the provision seems to be that the holder of a "B" share was entitled to receive notice of and to attend every meeting the business of which should include the consideration of a resolution of any of the four kinds that are mentioned, and was entitled to vote upon a motion for any such resolution but upon no other. But even if it be assumed that he was entitled to vote upon all matters on the business paper of such meeting, it remains true that all matters arising before the general meeting on any other occasion were to be decided by a majority of the votes cast in respect of ordinary shares.

The kinds of matters which could so arise were greatly limited by the operation of provisions in the articles of association. Most importantly, art. 106 took from the general meeting and committed to the board of directors the management and control of the business and affairs of the company, and authorized the board to exercise all such powers and do all such acts and things as were not expressly required to be exercised or done by the company in general meeting. These provisions, however, were subject to the provisions of the Companies Act and of the articles, and to any regulations from time to time made by the company in general meeting; and the residue thus preserved was not insignificant. The Commissioner contends that it is not to the point to consider what range of topics remained within the competence of the general meeting: the proper inquiry, he says, is whether the deceased held the preponderance of voting power in the general meeting upon such matters as might come before it in the ordinary course of the company's affairs.

This contention involves three propositions: (i) that a member who has a majority of the votes that may be cast at a general meeting has control of the company, in whatever position he may be at meetings of the directors and however extensive may be the powers of the directors to conduct the company's affairs to the exclusion of the general meeting; (ii) that the foregoing is true even though there are some topics in respect of which the member has not a majority of the votes that may be cast at a general meeting, provided that those topics are of an exceptional character; and (iii) that reduction of capital, sale of the main undertaking, winding up, and variation or abrogation of any of the rights attached to one class of shares are topics of the exceptional class to which the second proposition refers.

In considering the first proposition it is important to keep in mind the nature of the immediate topic with which the relevant provisions of the Act are dealing. The general purpose of s. 7 is to define the composition of that which the Act makes a subject of taxation under the designation of the estate of a deceased person; and sub-s. (1) (d) (ii) adds to the actual estate property the subject matter of a gift inter vivos by the deceased, whenever made, where (I abbreviate) bona fide possession and enjoyment of the property was not assumed by the donee more than three years before the death of the deceased and retained during those three years to the entire exclusion of the deceased or of any benefit to him. It is for the purposes of that provision (in terms it is for the purposes of sub-s. (1) (d) as a whole, but in substance only for the purposes of par. (ii) thereof) and therefore, one may infer, in order to give extended effect to the general concept of a gift not followed by exclusion of the donor by the donee from possession and enjoyment of the subject matter during the three years before the death, that sub-s. (2) (b) proceeds to deal with a special kind of case. It is a case in which, although there has been no gift by the deceased in the strict sense of the word, there has been a share transaction in circumstances which give it a practical resemblance to a gift by him accompanied by a withholding of full possession and enjoyment from the donee during the three years before the death.

In the first place, it is a case in which an issue of shares by a company otherwise than for full consideration in money or money's worth, and therefore wholly or partly in the nature of a gift to the person who takes them up, may be assimilated to a gift inter vivos by the deceased for the reason that the deceased held shares in the company at the time of the issue, so that the issue for less than full value necessarily reduced the value of the deceased's property at that time. What proportion of the deficiency of consideration was reflected in a diminution in the value of the deceased's shares necessarily depended upon the proportion which the deceased's shares bore to the total of the issued share capital in the company as it stood before the new issue was made; but sub-s. (2) (b) is the kind of enactment which notoriously and almost of necessity lays down a more or less arbitrary rule in order to produce what the legislature considers a proper result, however anomalous its operation in some individual cases may turn out to be. Accordingly sub-s. (2) (b) deems shares that were issued otherwise than for full consideration to be the subject matter of a gift by the deceased, not only if he held all or nearly all of the previously-issued shares, but if "the company was controlled by the deceased". (The definition of "gift inter vivos" was presumably relied upon to impose a proportionate limitation upon the value to be brought into account in the calculation of duty where the person to whom the new shares were issued gave some, though inadequate, consideration for them.) Then the second element in the general conception of sub-s. (1) (d) (ii) had to be allowed for, that is to say the notion of the non-exclusion of the deceased during the three years before his death from possession and enjoyment of the deemed subject matter of the "gift". To this end the person to whom the shares were issued is deemed not to have assumed bona fide possession and enjoyment of them so long as "the company was controlled by the deceased".

The task of identifying the concept which the Act adopts when it refers to a "company which was controlled by the deceased", is, I think, not difficult when these considerations are borne in mind. The concept has to do in the first case with the general likelihood that the pecuniary advantage which the "donee" received by the issue to him of the new shares for less than their value was at the expense, mainly if not altogether, of the deceased. In the second case the description relates to the voting power which the deceased had and continued to have by virtue of his shares; for only by reason of a preponderance of his votes over all others that may be cast at a general meeting could one person's shareholding be regarded as qualifying, in a practical sense, the full possession and enjoyment of the shareholdings of others. The context therefore suggests strongly that what sub-s. (2) (b) means by the company having been controlled by the deceased is that the deceased's shareholding carried with it the power to out-vote all opposition in the company.

To say this is of course to use the expression "the company", and to read sub-s. (2) (b) as using it, in its strict sense as meaning the corporation aggregate itself as distinguished from the board of directors which acts for it in the management of its affairs. The board binds the company by what it does within the authority which the articles of association confer upon it, but its decisions are decisions made for the company, not by it. Only the decisions of the company in general meeting are decisions of the company; and this is true however wide may be the powers of the board and however few and limited the powers of the general meeting. When, therefore, a statute makes the fact that "the company" was controlled by a deceased person a critical fact in respect of duty upon the estate of the deceased the prima facie meaning must be that the company in general meeting was controlled by the deceased in the only way in which it could be so controlled, namely by the aggregation in the hands of the deceased of shares carrying a majority of the votes that might be cast upon a poll.

This is the conclusion to which I think one would come upon a study of sub-s. (2) (b) in the context in which it stands and without the aid of decisions upon other and different enactments. The reasons above given involve the rejection of one of the appellant's contentions, namely that control of the company, in this context, is to be decided by assessing the degree of ascendency which the deceased possessed in the general government of the company's affairs by the board as well as by the general meeting. I think the contention should be rejected as departing from the language of the statute by substituting "the affairs of the company", or some similar expression, for "the company". I think it should be rejected also as disregarding the nature and apparent object of the provision for the purposes of which sub-s. (2) (b) is enacted. And finally I think it should be rejected as being inconsistent with cases decided upon comparable enactments.

Many of the decisions to which reference has been made in the argument are decisions upon statutes in which the expression to be construed was "a controlling interest"; and we have been invited for this reason to put them aside as irrelevant. The word "interest" may be thought to point by its own force to a holding of shares, and therefore to the voting power that shares give at a general meeting rather than to control of the company's affairs by whatever means; but the decisions in the United Kingdom put beyond question the view which Viscount Simonds expressed in Barclays Bank Ltd v Inland Revenue Commissioners [1] when he said that he saw no difference between the natural meaning of the two phrases "having a controlling interest in the company" and "having control of the company". See also per Lord Cohen in Barclays Bank Ltd v Inland Revenue Commissioners [2] ; Inland Revenue Commissioners v Harton Coal Co Ltd [3] . No one seems ever to have doubted the accuracy of what Rowlatt J. said in B W Noble Ltd v Inland Revenue Commissioners [4] , when he put aside a contention that control of the board of directors was material in deciding whether a person had a controlling interest in a company - put it aside with the remark that the statutory provision he was considering was not referring to that class of consideration at all - and added:

"controlling interest" is a phrase that has a certain well-known meaning; it means the man whose shareholding in the company is such that he is the shareholder who is more powerful than all the other shareholders put together in general meeting. 1. [1961] A.C. 509, at p. 524. 2. [1961] A.C. 509, at pp. 535, 536. 3. [1960] Ch. 563, at p. 578. 4. (1926) 12 Tax Cas. 911, at p. 926.

Not only has this proposition never been denied but it has received the specific endorsement of the House of Lords, and has been qualified in only one respect, namely that a company A, which by virtue of its voting power in a general meeting of company B controls that company, has a controlling interest in company C if company B holds the majority of votes in the general meeting of company C. In British American Tobacco Co v Inland Revenue Commissioners [1] , Viscount Simon, with whom the other members of the House agreed, quoted the words of Rowlatt J. with approval. When he turned to the facts of the case before him he used expressions that have seemed to some to cause difficulty, but they must be understood in the light of his unequivocal adoption of Rowlatt J.'s proposition. He spoke of the "owners of the majority of the voting power" in the subject company as being the persons who were "in effective control of its affairs and fortunes"; but what he was answering by that observation was not an argument based upon the width of the topics to which the powers of the general meeting extended but an argument that the appellant company had not a controlling interest in the subject company because its control of the general meeting was only indirect, the majority voting power being held by a third company which the appellant company controlled. The emphasis was on the word "effective". Then his Lordship referred to a contention that the appellant company had not a controlling interest because it held less than seventy-five per cent of the voting power and for some purposes, of which the removal of directors was one, a seventy-five per cent majority was required by the articles of association. (Required "under some company regulations" was the expression he used, but this seems to have meant under the regulations of some of the companies there being considered: see the report of the argument in the Court of Appeal [2] .) His Lordship gave one answer to this contention so far as it related to the removal of directors in a company the articles of which make the election of directors a matter for the general meeting, but he did not give a general answer to it. He pointed out only that in such a company the holders of a bare majority of votes can get their own way in the long run by refusing to re-elect recalcitrant directors. This passage in Viscount Simon's speech was relied upon in the argument for the appellant in the present case, being interpreted as implying that control of the board of directors is essential, or at least relevant, to control of the company; and reliance was placed upon the fact that by the articles of the company now in question the appointment and removal of directors were matters for decision not by the general meeting at all, but by the holders of a majority of the issued shares: arts. 85 and 87. Accordingly, it was said, after the 20,000 "B" shares had been issued to the son it was he, and not the deceased, who controlled the composition of the board. But Viscount Simon could not have been intending to contradict the statement of Rowlatt J. which he had just approved without suggesting even a qualification upon it. That statement as applied to a company in which neither the appointment nor the removal of directors is a function of the general meeting necessarily means that for the purpose of deciding who controls the company it is irrelevant to consider whose will determines the composition of the board.

1. [1943] A.C. 335, at pp. 339, 340. 2. [1941] 2 K.B. 270, at p. 276.

But it seems to me, further, that the statement implies a general answer to the problem which arises where a topic is within the powers of the general meeting but the Companies Act or the articles require more than a bare majority of votes for a resolution upon it to produce a particular legal result. Such topics, in the present case, are reduction of capital: (Companies Act 1958 Vict, s. 53 and art. 45 of the company's articles of association); voluntary winding up (s. 195); and variation or abrogation of rights of the "B" shares (art. 11). As to all of these a special resolution, i.e. one passed by a majority of not less than three-fourths of such members as, being entitled so to do (as a holder of "B" shares is upon all these topics) vote at a general meeting called in accordance with s. 119 of the 1958 Act. The general answer is, in my opinion, that special majorities upon such special matters are provided for by way of protection for minority shareholdings, so that a change in the status quo upon those matters shall not be made merely by virtue of votes which give control of the meeting.

The proposition which Rowlatt J. laid down was reaffirmed by the House of Lords in Inland Revenue Commissioners v J Bibby & Sons Ltd [1] , Lord Macmillan expressing it succinctly and absolutely by saying [2] : "The control of a company resides in the voting power of its shareholders." Some play was made in the argument before us with a passage in the judgment of Lord Porter [1] , in which he interpreted the expression "a company the directors whereof have a controlling interest therein" as meaning a company in which the directors "by means of their shareholding are able to direct the affairs of the company according to their will". This was read as indicating that Lord Porter regarded the proposition as applicable only to a company in which the general meeting has at least some substantial power to control the board in its management of the company's affairs, and that where, as here, that is not the case, it is necessary, for the purpose of deciding whether a given person or group of persons controls the company, to look beyond the general meeting. If Lord Porter had intended his words to be so interpreted he could hardly have begun as he did by agreeing with the speeches of Lord Russell of Killowen and Lord Simonds. Obviously, I should have thought, what he meant by "the affairs of the company" which the directors might direct by means of their shareholding was simply those affairs which the articles subjected to direction by the general meeting.

1. [1945] 1 All E.R. 667. 2. [1945] 1 All E.R., at p. 670. 3. [1945] 1 All E.R. 667, at p. 672.

Finally, in Barclays Bank Ltd v Inland Revenue Commissioners [2] , the general proposition was applied by their Lordships to an Act which used an expression similar to that which is used in s. 7 (2) (b): "if the deceased had the control of the company ". Even Lord Reid, who dissented from the majority opinion that a holder of shares carrying a preponderance of votes at a general meeting had the control of the company notwithstanding that in respect of his votes he was himself amenable to some external control, said [3] : "No one doubts that control means voting control - control by the majority of votes at a general meeting."

1. [1961] A.C. 509. 2. [1961] A.C., at p. 526.

This Court has held similarly in W P Keighery Pty Ltd v Federal Commissioner of Taxation [4] and Adelaide Stevedoring Co Ltd v Federal Commissioner of Taxation [5] . The present case, however, is complicated by the fact already mentioned that after the issue of the 20,000 "B" shares to the son the deceased held the predominant voting power at a general meeting in respect of all topics except reduction of capital, sale of the company's main undertaking, winding up of the company, and variation or abrogation of the rights attached to the "B" shares, while the son held the predominant voting power in respect of those four topics. The learned primary judge considered that the concept of control by means of votes at a general meeting had to do only with the continuing operation of the company as a going concern, and that as the four topics on which the son held the majority of votes would not be likely to arise in the ordinary course of the company's operations his voting power in respect of them was irrelevant and it should be held that the company was controlled by the deceased.

1. (1957) 100 C.L.R. 66. 2. (1961) 106 C.L.R. 658, at p. 663; (1963) 109 C.L.R. 309.

With respect, it seems to me that to adopt this view is to qualify the well-established test of control in a manner which cannot be supported. If in the general meeting one person has the majority of votes on some subjects and another has the majority of votes on other subjects, neither can truly be said to control the company. The control is divided between them. In relation to the present case, I think, for the reason I have given, that the fact is immaterial that upon three of the four topics above mentioned a special resolution is required. Moreover, no special majority is required for a resolution upon the fourth topic. The son at the material times held the majority of votes upon each of the four topics, and therefore controlled the company in respect of them.

The deeming provisions of s. 7 (2) (b) are expressed to apply, not where a company was partially controlled by the deceased, or was controlled by him in respect of most topics, or in respect of the most important topics or those of most common occurrence, or even all topics that might relate to the ordinary operation of the company as a going concern, but where it was controlled by the deceased - controlled by the voting rights of the deceased in no less than the whole of the possible agenda of a general meeting - controlled because the company in general meeting could pass no resolution against his opposition and must pass any resolution he should support, not perhaps as a special resolution and so achieve a particular legal result, but at least as an ordinary resolution. To interpret the provision in this sense is, of course, to leave outside its operation many cases in which the deceased had a preponderance of voting power in respect of so significant a range of matters that it might have been considered to be as surely in accord with the general idea of s. 7 (1) (d) to deem him to have controlled the company as to deem one whose preponderance of voting power extends to every matter within the competence of the general meeting. But to draw a line with clarity would be exceedingly difficult, and the legislature has not attempted to do it. Only the case where control by the deceased has been absolute is provided for. It is a firm principle of construction that "if there be admissible, in any statute, what is called an equitable construction, certainly such a construction is not admissible in a taxing statute, where you can simply adhere to the words of the statute": Partington v Attorney-General [1] . Upon that principle I am of opinion that the present case should be held not to be within s. 7 (2) (b) and accordingly not to be within s. 7 (1) (d).

One fact not so far mentioned should be stated, if only to show that it has not been overlooked. That is that the son paid for the 20,000 shares (but not the 12,750 shares) with money which the deceased had given him. The money given does not form part of the deceased's estate under s. 7 (1) (d) (i) as being property the subject matter of a gift inter vivos by the deceased made within three years immediately before the death of the donor, for the gift was made outside the three-year period; but the Commissioner has submitted as an alternative to his main argument a contention that the second proviso to s. 7 (1) (d), operating in association with s. 7 (1) (d) (i), brings the 20,000 shares into the estate for duty purposes. The proviso is expressed to apply where money which was the subject matter of the gift has been invested, and it provides in effect that any property which at the date of the death of the donor represents the money shall be deemed to be the property the subject matter of the gift inter vivos.

The short answer is that the proviso leaves the date of the gift unaltered, and therefore it has no application in respect of a gift of money made more than three years before the death unless the case falls within par. (ii), (iii) or (iv) of s. 7 (1) (d).

The result is that the appellant should succeed both on the appeal and on the cross appeal. For the order of the Supreme Court there should be substituted an order pursuant to s. 19 (9) of the Probate Duty Act declaring that the appellant's objection that neither the 20,000 "B" shares nor the 12,750 "B" shares are to be deemed part of the estate of the deceased was correct, declaring that the assessment was excessive, and reducing the assessment accordingly.

I agree with the reasons and conclusions of Kitto J.

There is no doubt that before the issue of the 20,000 "B" shares to the appellant in September 1959 the company was "controlled by the deceased" within the meaning of that expression as used in s. 7 (2) (b) of the Probate Duty Act 1962 Vict. Apart from what may be said about the "generality" of that expression as used in the subsection the deceased, in the language of s. 7 (3), "directly or indirectly controlled the composition of the board of directors of the company", he directly controlled more than half of the voting power of the company and he held more than half of the issued share capital of the company. But after the issue of the 20,000 "B" shares none of the prescribed criteria applied to him. So much is conceded but, as a corollary, the concession carries with it, in effect, an admission that after that event, it was the appellant who directly or indirectly controlled the composition of the board of directors, that it was he who directly held more than one-half of the issued share capital of the company (excluding any part thereof which carried no right to participate beyond a specified amount in a distribution of any profits or capital) and that it was he who, at least in some circumstances, directly controlled more than one-half of the voting power of the company. Nevertheless, it is asserted by the respondent that the company continued to be controlled by the deceased after September 1959 until the issue of the 12,500 "B" shares in February 1961 and, indeed, until the time of his death. It was, of course, sufficient to establish that he continued to be in control of the company when the second issue of shares was made for that occurred within three years of his death.

It thus appears that it was the respondent's contention that, after the issue of the 20,000 "B" shares, the company continued to be controlled by the deceased not because of the existence of any of the criteria specified in s. 7 (3), but because, the "generality" of the relevant expression being preserved by the opening words of that subsection, it appeared that there were other grounds upon which that conclusion might be reached. I find some difficulty with this concept for it seems to me that the criteria specified by the deeming provisions of s. 7 (3) not only include the criteria the existence of which would lead ordinarily to the conclusion that a company was "controlled by" a person but, in addition, other criteria which would not ordinarily lead to that conclusion. In other words, it is difficult to perceive any grounds outside the more extensive grounds specified in the subsection upon which a conclusion favourable to the respondent could be reached.

However this may be Menhennitt J. solved the problem in favour of the respondent, in effect, by disregarding the voting power attached to the "B" shares in respect of the four topics referred to in art. 3 and by having regard only to the majority voting power which the deceased's holding of five of the nine ordinary shares gave him in respect of all other topics within the scope of a general meeting of the company. These four topics his Honour thought were "exceptional matters not likely to arise and, therefore, would only in unusual circumstances give occasion for the exercise of voting rights by the "B" shareholders". He added, "in considering where control lay, it appears to me from the authorities, to which I am about to refer, that the normal position which is likely to arise at any time is to be looked at, and this is what I have done". But the cases to which his Honour thereafter referred, whilst of value in determining what is meant by expressions such as "having a controlling interest in a company" or "having control of a company" and other like expressions do not, in my view, throw any light on the unusual problem which arises in this case where the holder of shares of a particular class has control of the company in relation to some matters but not in relation to others. Nor, it seems to me, does s. 7 (2) (b) make any provision with respect to such circumstances. For the deeming provisions of that subsection to operate it must appear that the company making the issue of shares was controlled by the deceased at the time of the issue and, further, if the deemed gift was made more than three years before his death, that he continued to control the company until less than three years before his death. These criteria, it seems to me, do not contemplate and have nothing to say to a situation where a company's articles operate to divide the control of the company between two different classes of shareholders, or, where, as here, control of the company in relation to some matters rests with the general body of shareholders and control in relation to other matters rests with one class only of the company's shareholders.

It may be that if the matters committed to the general body of shareholders could be disregarded on the de minimis principle something could be said in favour of the application of s. 7 (2) (b). But that is far from the case here. After the first issue of shares had been made to the appellant it virtually rested with him, as the holder of the "B" shares, to determine whether the company should continue or whether it should be wound up, whether any part of the capital should be repaid (in which event the holders of the "B" shares were entitled to share pari passu with the holders of ordinary shares) and whether the undertaking of the company should be sold. Moreover his rights as the holder of the "B" shares could not be varied or abrogated without his consent. These are not insignificant matters and, considering the nature and object of the legislative provision in question, there seems no reason to prefer, as a test of liability, "control of the company as a going concern" to control of the company so far as the retention and disposition of its capital is concerned. This being so it is, I think, impossible to say that the deceased was in control of the company at any time after September 1959; to hold otherwise would, in my view, be to depart from the test of liability provided by s. 7 (2) (b) and to substitute another and different test. I agree that the appeal should be allowed and the cross appeal dismissed.

For the purposes of the revenue laws a member of a company who holds enough shares to give a majority of votes at a general meeting has "control" of the company. That is the general rule. Control in that sense means the capacity to carry an ordinary resolution at a general meeting. This I take it is derived from the old common law concept of a corporation aggregate. Its corporate acts were and are acts done pursuant to the decision of its members assembled in a general meeting. They, the general body of the corporators assembled together for corporate purposes, were the corporation. Consistently with this, the constitution of a common law corporation could always provide for a select body of its members to do acts on its behalf which would be binding upon the corporate body. I need not cite the numerous authorities in the old reports; one will suffice: Conservators of the River Tone v Ash [1] . Modern company law reflects these ideas, more obviously perhaps in its earlier stage than today. The members collectively assembled are the company. Anyone who by the exercise of voting power can control the decisions of a general meeting can thus be said to control the company. Directors are the agents of the company. The management of the company's affairs may be committed to them; but in carrying out their duties they act on behalf of the company. However, some or all of the powers of the corporation may by the articles be made exercisable only by the directors. And it is now well established that in such a case a general meeting cannot dictate to them how they shall exercise their powers: see the judgment of Jordan C.J. in Clifton v Mount Morgan Ltd [2] and the cases referred to there. I appreciate that in some of the cases and by some commentators the relationship between the authority of directors and a general meeting has been stated in terms which make it not easy to reconcile in any realistic way the simple proposition that control of a company depends upon the capacity to carry an ordinary resolution at a general meeting with provisions in articles which put directors, or a governing director, in complete control of the business of the company. Perhaps the reconciliation depends upon viewing control as a capacity to control the appointment of directors when vacancies on the board have to be filled. Perhaps the question itself involves a more fundamental matter, one's concept of corporate existence, of what is the company. For present purposes however, and in particular having regard to s. 7 of the Probate Duty Act 1962 Vict, no reason was shown for doubting the application of the ordinary rule.

1. (1829) 10 B. & C. 349, at p. 378 [109 E.R. 479, at p. 490]. 2. (1940) 40 S.R. (N.S.W.) 31, at pp. 44, 45.

But the power to control the decisions of a general meeting can only amount to control of the company, in the relevant sense, when it is a power to carry a resolution on any topic which can come before a general meeting - or so it seems to me. It is a concept of control which assumes that there was no matter, or perhaps no substantial matter, on which the deceased could be outvoted at a general meeting. I mention no substantial matter, because it may be that an inability to control the decision on some minor and incidental matter might not necessarily be regarded as displacing control in the relevant sense. We do not have to decide that. It would not be easy to draw the line in any case. The legislature has not said that there is such a line. I mention the matter only because, with respect to him, I am unable to take the view that the learned trial judge took. It seems to me that topics which were beyond the control of the deceased could be essential to the effective control of the company in a business sense. Sale of a company's undertaking, especially to a new company formed for the purpose; winding up, especially with a view to reconstruction; reduction of capital; variation of the rights attached to particular classes of shares - these are all powers which are not infrequently exercised in the conduct of a company's affairs. Even if it be permissible to differentiate the possible topics which could come before a meeting, it could not I think be said that a person is in control of a company if on such matters as those I have mentioned he could be outvoted at a general meeting.

I agree that the appeal should be allowed and the cross appeal dismissed.