Scottish Court of Session Decisions

The Finance Act 1894 (37 and 38 Vict. cap. 30) enacts, sec. 1—“In the case of every person dying after the commencement of this part of this Act there shall … be levied and paid upon the principal value … of all property … which passes on the death of such person a duty called estate-duty….”

Sec. 2 (1)—“Property passing on the death of the deceased shall be deemed to include the property following—that is to say, ( a) Property of which the deceased was at the time of his death competent to dispose.…”

Sec. 22 (2) ( a)—“A person shall be deemed competent to dispose of property if he has such an estate or interest therein, or such general power as would, if he were sui juris, enable him to dispose of the property, including a tenant in tail, whether in possession or not; and the expression ‘general power’ includes every power or authority enabling the donee or other holder thereof to appoint or dispose of property as he thinks fit. …”

On 25th July 1906 the Lord Advocate on behalf of the Commissioners of Inland Revenue raised an action against Dame Mary Agnes Winwood Hughes, of Shelsley Grange, Worcestershire, and others, the executors acting under the joint last will and testament of the deceased Dr Robert Halliday Gunning, who died on 22nd March 1900, and his widow the said Dame Mary Hughes, dated 5th November 1896, and recorded in the Court Books of the Commissariot of Edinburgh on 3rd May 1900. The summons concluded for an account of “all donations” made by Dr Gunning to his wife after their marriage and remaining unrevoked at his death, for purposes of ascertaining the estate-duty due on the personal property passing on his death, and for a sum of £1000 in name of such duty.

The pursuer averred—“(Cond. 3) It is believed and averred that Dr Gunning gifted or made over certain of his funds or portions of his estate to his wife. The total value is not known, nor to what extent the property given consisted of personalty or heritage. By a trust settlement dated 19th July 1900, and recorded in the Books of Council and Session 21st March

1901, Dr Gunning's widow, the said Dame Mary Agnes Winwood Hughes, made provision for his niece Miss Elizabeth Gunning and his grandniece Miss Jane Gunning Carruthers. This deed proceeds on the narrative that Dr Gunning had made over to his said wife certain funds as her absolute property, but on the understanding that she should apply or bequeath them in terms of his wishes as expressed to her verbally, and that she should ultimately bequeath any unused surplus to his testamentary trustees for the purposes of his testamentary settlement. The amount of the funds which Dr Gunning handed over to his wife has not been disclosed, but by the said deed she expressed her resolve forthwith to place the sum of £10,000 in the hands of the parties therein named as trustees for the purposes therein declared.” [An extract of the said trust settlement by Dame Mary Hughes was produced.]

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The defenders in answer stated that they believed certain gifts had been made by Dr Gunning some years before his death to his wife, the nature and amount of which was unknown to them. They, inter alia, pleaded—“(2) Estate duty not being due on gifts of funds or property which had been made by the late Dr Gunning to his wife some years before his death, and which he had not revoked, the defenders should be assoilzied from the conclusions of the summons. (3) The defenders, as executors of the late Dr Gunning, not being bound to— et separatim not having the information necessary to enable them—to deliver the accounts sued for, they should be assoilzied from the conclusions of the summons.”

On 16th November 1906 the Lord Ordinary ( Johnston) assoilzied the defenders with expenses.

Opinion.—“Dr Gunning died in 1900 leaving estate which was returned at £107,800, on which estate duty has been paid. But Dr Gunning had during their marriage made certain donations to his wife Dame Mary Agnes Winwood Hughes, the history and amount of which are not ascertained. It is, however, sufficient for the present purpose that it is asserted by the Crown, and admitted by Dr Gunning's trustees, that donations were made by Dr Gunning to his wife, and that they remained unrevoked at his death. The Crown now call for an account of them in order that the additional estate duty leviable in respect of them, as personal property passing at the death of Dr Gunning, may be ascertained.

The contention of the Crown is that donations by Dr Gunning to his wife could have been revoked at any time during the subsistence of the marriage and disposed of by him, and that they therefore fell under the category of property of which he was competent to dispose at the time of his death, which by the Finance Act 1894, section 2 (1) ( a), is to be deemed to be included in the property passing at Dr Gunning's death, and therefore to be liable to estate duty.

Dr Gunning's trustees dispute this contention, and maintain that any donations which might have been made by Dr Gunning to his wife and which remained unrevoked by him were no part of the estate, actually or constructively, which passed at his death, and they therefore refuse to lodge the account demanded, and, in fact, they say that they have no information to enable them to do so.

The question is a novel and an important one, the more so as the law as to the revocability of donations inter virum et uxorem is different in Scotland and in England. In Scotland they are revocable, in England admittedly they are not. Hence, if the contention of the Crown is sound, the incidence of the statutory provision of estate duty would not be equal in the two countries. That would be assessed to duty in Scotland which would go free in England. The present is a very exemplary case of the uncertain and uneven effect of the Crown's claim. Dr Gunning resided originally in Edinburgh. I do not know where he was born, though I assume in Scotland. But he made his fortune, it is pretty clear, in Brazil, and latterly lived in London, where he died. It appears, however, to have been agreed that he died, notwithstanding, domiciled in Scotland, and hence the claim in this Court, which would probably have been avoided had he lived a little longer in London.

Such a haphazard incidence of the duty it cannot be reasonably presumed was intended, and one would have to be well satisfied that it was a necessary consequence of the language of the statute before sustaining the claim.

In the case of Saltoun v. The Lord Advocate (1860), 3 Macq. 659, Lord Chancellor Campbell said—‘In construing the statute on which this case depends' (the Succession Duty Act 1853), ‘we must bear in mind that it applies to the whole of the United Kingdom, and that the intention of the Legislature must be understood to be that the like interests in property taken by succession should be subjected to like duties wheresoever the property may be situated. The technicalities of the law of England and of Scotland where they differ must be neglected and the language of the Legislature must be taken in its popular sense.’

The question in that case was, who was to be deemed the ‘predecessor’ of a substitute heir of entail in the sense of the Succession Duty Act 1853; and in its determination the principle enunciated by Lord Chancellor Campbell was applied. So, too, I think it was by the majority of the House of Lords in Pensel's case, L.R. (1891), A.C. 531, see Lord Herschell, pages 570–3, in construing the expression ‘trust for charitable purposes’ of the Income Tax Act.

This matter was also extensively discussed in the case of Lord Advocate v. Earl of Moray's Trustees, 7 Fr. (H.L.) 116, where it was necessary to apply in Scotland section 9, sub-section 6, of the Finance Act 1894, entitling a person having a limited interest in property to a charge for the amount of estate duty paid by him in respect of the property, the expressions used in the sub-section being inappropriate to Scotland. In that case Lord Macnaghten said—‘It must be presumed to have been the intention of Parliament to make the incidence of the taxation the same in Scotland as in England and in Ireland, and to extend the same measure of relief, such as it is, to limited owners called upon to discharge a burden on the inheritance wherever the property burdened may be situated.’ And his Lordship then quoted with approval the words of Lord Cranworth in Saltoun's case, supra—‘This decision, though it would do violence to some of the best-established doctrines of Scotch law if the present question were one of conveyancing, may yet be well admitted in the construction of an Act intended to impose corresponding duties on successions happening under two different systems of law.’ And in the same case Lord Davey added—‘I think that the same principle applies as was laid down in this House with regard to

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the Succession Duty Act— Lord Braybrooke v. Attorney-General (1860), 9 H.L.C. 150 — that the Act is not to be construed according to the technicalities of the law of England or of Scotland, but according to the popular use of the language employed.’

In Saltoun's and Moray's cases technicalities of conveyancing were alone concerned, and it was held that a common sense must be given to the expressions of the enactments in question irrespective of such technicalities, in order to effectuate an equal incidence of assessment. In Pensel's case the point of difference was not of conveyancing, but more nearly akin to the point here. It was one of construction adopted and stereotyped by judicial decision. In the present case the difference goes deeper, being in the common law of the two countries.

If I found that the expressions used in the statute were incapable of application in Scotland without either producing an unequal incidence of taxation or requiring me judicially to assimilate pro hac vice the law of Scotland on a particular point to the law of England, I should hesitate, notwithstanding the generality of some of the opinions to which I have referred, to do the latter in order to avoid the former. But I think that I am fully justified in regarding the intention of equal taxation as a clue to the meaning of the expressions of the statute, where these can reasonably be made to bear an interpretation which will produce such equal incidence.

The expression to be interpreted is (Finance Act 1894, section 2 (1) ( a)) ‘property of which the deceased was at the time of his death competent to dispose.’ It can hardly be disputed that, broadly speaking or in a popular sense, by his settlement the deceased was competent to dispose of any subject donated to his wife during marriage. He had nothing to do but make a testamentary disposition of it, and the act of disposition would imply the necessary revocation ( Henderson v. Tulloch, 1833, 12 S. 133). But to imply the revocation the disposition must be express. Still I think that it is open to me to regard such a testamentary disposition as a composite act, one of revocation and one of disposal. Without revocation he could not dispose. So long as there was no revocation, therefore, he was not competent to dispose. The act of revocation and the act of disposal might be inseparable, as where by testamentary instrument. But, if so, then where there was no testamentary disposal there was no revocation, and therefore no present competency to dispose.

It may be that in so applying the statutory provision I am attaining uniformity of taxation not by taking the broad popular view but a narrower and more recondite one. But if inequality of the incidence of taxation can be so avoided I think I am justified in so doing.

I do not think any aid is obtained from the interpretation clause, section 22 (2) ( a), for to reason from it would be reasoning in a circle.

On the other hand, the difficulties in which the executors would find themselves under section 6 (2) and section 8 (3), and the insufficiency of sections 9 and 14 for their relief, favour the exclusion of a donation inter virum et uxorem unrevoked at the death of the donor from the effect of section 2 (1) ( a).

It may not be inappropriate to refer to the analogy of entail expenditure, cf. Maxwell, 1877, 4 R. 1112, which appears to me to be much in the same position as a donation inter virum et uxorem unrevoked. Both are, quoad succession, of the nature of a res merce facultatis, capable of being brought within the purview of the sub-section, but requiring an act of the deceased to place them in that position which he may die without performing.

I think also that a general power of appointment unexercised may be in the same position, cf. the Legacy Duty Act 1796, section 18 (the latter half, ‘such property upon the execution of such power shall be charged,’ &c.).

I shall therefore assoilzie the defenders with expenses.”

The pursuer reclaimed, and argued—The gifts by Dr Gunning to his wife were capable of being revoked by the donor up to the time of his death, and therefore were property of which he was “competent to dispose.” They therefore “passed” at his death and must be included in calculating estate duty—Finance Act 1894, sections 1 and 2 (1) ( a), 22 (2) ( a). Competency to dispose depended on the possession of power to dispose, not on whether that power had or had not been exercised. No preliminary act of the husband was necessary to render him capable of disposing of the gifts in question. A bequest by will to anyone other than his wife would have been effectual as against the wife. The fact that under English law a gift by a husband to his wife ceased to be the property of the donor at the date of the gift and was an irrevocable gift so that he was not competent to dispose of it at his death, was no reason for construing the words of the statute, as applied to Scotland, so as to exclude from its compass property which a Scottish husband was under Scots law competent to dispose of. The interlocutor of the Lord Ordinary should be recalled.

Argued for the defenders and respondents — The Lord Ordinary was right in holding that if a meaning could be found for the words “competent to dispose” which would make the incidence of the duty equal in England and Scotland that meaning should be adopted— Lord Saltoun v. The Advocate-General, April 30, 1860, 3 Macq. 659; Commissioners for Special Purposes of Income-Tax v. Pensel, [1891] AC 531; Lord Advocate v. Earl of Moray's Trustees, August 4, 1905, 7 F. (H.L.) 116, 42 S.L.R. 839. The result of the pursuer's contention would be that the donations of a husband to his wife would be subject to estate duty in Scotland but not in England. In order to put Dr Gunning in a position to be competent to dispose of the property gifted to his wife, some act of revocation was necessary and he had not

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performed any such. A general settlement would not revoke a donation—Fraser on Husband and Wife at p. 953; Erskine's Institutes, i. 6, 31. The property gifted to a wife passed absolutely to her at the date of the gift, subject only to a resolutive condition that the donor might resume the property to himself— Thomson v. Thomson's Trustees, July 9, 1879, 6 R. 1227, the Lord Justice-Clerk (Moncreiff) at p. 1229, 16 S.L.R. 727. Thus vesting in the wife operated on a donation being made, accompanied by a complete divestiture of the husband, unless Dr Gunning exercised his power of again becoming dominus of the property, which he had not. The Finance Act 1894, sec. 2, sub-secs. 1 ( a) and ( c), were also referred to.

The pursuers on January 25, 1907, in consequence of some remarks from the Bench at the hearing which took place on January 8, 1907, lodged a minute restricting “the conclusions of accounting and payment to the estate-duty claimable in respect of the funds made over by the said Robert Halliday Gunning to the said Dame Mary Agnes Winwood Hughes during marriage, as set forth in her trust settlement dated 19th July 1900 and recorded 21st March 1901,” reserving any further claim.

At advising—