Scottish Court of Session Decisions

The Finance Act 1894 (57 and 58 Vict. c. 30) section 7, enacts—“(1) In determining the value of an estate for the purpose of estate duty, allowance shall be made … for debts and incumbrances; but an allowance shall not be made ( a) for debts incurred by the deceased, or incumbrances created by a disposition made by the deceased, unless such debts or incumbrances were incurred or created bona fide for full consideration in money or money's worth wholly for the deceased's own use and benefit and take effect out of his interest … and any debt or incumbrance for which an allowance is made shall be deducted from the value of the land or other subjects of property liable thereto.”

Section 14—“(1) In the case of property which does not pass to the executor as such, an amount equal to the proper rateable part of the estate duty may be recovered by the person who, being authorised or required to pay the estate duty in respect of any property, has paid such duty, from the person entitled to any sum charged on such property (whether as capital or as an annuity or otherwise) under a disposition not containing any express provision to the contrary.”

This was a Special Case to which the parties were the trustees of the late Major-General Sir Claud Alexander of Ballochmyle, Baronet, first parties, and the trustees under the antenuptial contract of marriage between Sir Claud Alexander of Ballochmyle (then Claud Alexander, younger of Ballochmyle) and Lady Diana Montgomerie, daughter of the Earl of Eglinton, second parties.

The following Statement is taken from the Special Case:—“(I) By antenuptial contract of marriage entered into between Sir Claud Alexander of Ballochmyle, in the county of Ayr, Baronet (then Claud Alexander, younger, Esquire of Ballochmyle), only son of Major-General Sir Claud Alexander of Ballochmyle aforesaid, Baronet, on the one part, and the Right Honourable Lady Diana Montgomerie, youngest daughter of the then Earl of Eglinton and Winton (with consent therein mentioned), on the other part, the said Major-General Sir Claud Alexander bound and obliged himself, and his heirs, executors, administrators, and successors whomsoever, renouncing the benefit of discussing them in their order, to make payment upon the solemnisation of the marriage to the persons named as trustees under the contract of a capital sum of £30,000 as a provision for the said intended spouses and the child or children of their marriage. He also bound himself to grant security for the payment thereof by means of a bond and disposition and assignation in security over his estate of Ballochmyle, to be executed by him of even date with said contract. The purposes for which the said sum of £30,000 were to be held were (1) payment of the trust expenses, (2) payment of the income or annual proceeds of said sum to the said Sir Claud Alexander during his life, (3) payment out of said income or annual proceeds to the said Lady Diana Montgomerie during her life if she should survive her husband of a free alimentary annuity of £750, and (4) subject to these provisions the trustees were directed to hold the said capital sum or provision of £30,000 and income thereof for behoof of the child or children of the said intended marriage, and the survivors and survivor of them, and the lawful issue of predeceasers leaving issue, and failing a a child or children of the said marriage and their issue the said sum or provision of £30,000 and the interest or income thereof was directed to be paid and made over to the survivor of the said deceased Major-General Sir Claud Alexander and his son the said Sir Claud Alexander, or to the heirs or assignees of such survivor. The said contract contained a provision and declaration that the trustees should not be entitled to demand or require payment during the lifetime of the said Major-General Sir Claud Alexander of the said capital sum or provision of £30,000 while and so long as he regularly paid to his son the said Sir Claud Alexander, or to the trustees of the said contract, the sum of £1000 per annum in half-yearly or quarterly portions, to which sum of £1000 the annual interest of said provision was limited and restricted during the lifetime of the said Major-General Sir Claud Alexander. The said contract also contained a stipulation that the trustees thereof should, if requested by the said Major-General Sir Claud Alexander, or his heirs, executors, administrators, and successors, be entitled

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at any time or times, if they deemed it advisable and proper to do so, to release from the security constituted by said bond and disposition and assignation in security any parts and portions of the lands and others therein contained, and also to accept in lieu of said security any other security that they might consider equally sufficient and satisfactory. The said marriage was duly solemnised. The only child of said marriage (which was dissolved at the instance of the husband on 19th July 1894 by decree of divorce of the Court of Session) is Wilfrid Archibald Alexander, who is in minority. (II) In implement of obligations undertaken by him in said marriage contract, the said deceased Major-General Sir Claud Alexander, by bond and disposition and assignation in security dated 6th December 1889 and recorded in the Division of the General Register of Sasines applicable to the county of Ayr on the 13th day of January 1890, bound himself, and his heirs, executors, and representatives whomsoever, to make payment to the trustees acting under that contract of the sum of £30,000, and conveyed to them in security certain lands and others forming the estate of Ballochmyle. The said bond and disposition and assignation in security was and bore to be granted in fulfilment of the granter's said obligation to grant security and in implement thereof. It was duly delivered to the parties of the second part. (III) The said Major-General Sir Claud Alexander died on the 23rd day of May 1899 leaving a trust-disposition and settlement, dated 29th February 1888, and three relative codicils, dated respectively 28th May 1888, 14th December 1892, and 11th February 1896, and all recorded in the Books of Council and Session on 5th June 1899. By said trust-disposition and settlement and codicils the said Major-General Sir Claud Alexander conveyed to certain trustees, who were also appointed his executors, all and sundry his whole means and estate, real and personal, belonging to him, or subject to his disposal at the time of his death. The purposes of the trust were the payment of debts and expenses, the payment of certain bequests to his widow and others, and a direction to his trustees to hold the lands of Ballochmyle and others, and the residue of his whole means and estate after implementing or providing for the prior purposès of the trust, in trust for Sir Claud Alexander, his son, in liferent allenarly, and for his grandson the said Wilfrid Archibald Alexander and the heirs of his body in fee, whom failing other substitute heirs. (IV) Upon Major-General Sir Claud Alexander's decease the parties of the first part, as his executors, gave up an inventory of his personal and moveable estate (which, after deduction of debts, amounted to £96,193, 12s. 1d.), and in appropriate accounts annexed thereto specified the other property (including the estate of Ballochmyle) in respect of which estate duty was payable. Thereafter as trustees and accountable persons within the meaning of the Finance Act 1894, the parties of the first part gave up an account for payment of the estate duty on the estate of Ballochmyle, and in bringing out the net principal value thereof for assessment to duty claimed a deduction on account of the said sum of £30,000 as being a debt or encumbrance thereon constituted by the deceased's said bond and disposition and assignation in security. This deduction was riot allowed by the Grown, on the ground that the trustees were not entitled thereto under the Finance Act 1894 and amending Acts, and the Court upheld this view — Inland Revenue v. Alexander's Trustees, 1905, 7 F. 367. Subsequently a corrective account was given up without any deduction being made in it in respect of said sum of £30,000.”

The contentions of the parties were thus set forth in the Special Case—“The parties of the first part contend that they are entitled to recover under said section from the parties of the second part payment of an amount equal to the proper rateable part of the estate duty paid on the death of the said Major-General Sir Claud Alexander, Bart., in respect of the said estate of Ballochmyle, no express provision to the contrary being contained in the said antenuptial contract of marriage or bond and disposition and assignation in security. The second parties maintain that the said sum of £30,060 contained in the said bond and disposition and assignation in security is not a ‘sum charged’ on the said estate of Ballochmyle within the meaning of the Finance Act 1894, section 14, sub-section 1, and that they are not liable to make payment to the first parties of any rateable part of said estate duty in respect of the lands and others conveyed in security of said sum.”

The questions of law were—“(1) Are the parties of the second part, as the holders of the said bond and disposition and assignation in security, persons entitled to a sum charged on the said estate of Ballochmyle within the meaning of section 14, sub-section (1), of the Finance Act 1894? (2) Are the parties of the first part entitled under said section to recover from the parties of the second part an amount equal to the proper rateable part of the estate duty paid on the death of the said Major-General Sir Claud Alexander, Bart., in respect of the said estate of Ballochmyle?”

Argued for the first parties—It had been decided that estate duty was exigible by the Crown upon the whole estate, and that the £30,000 could not be deducted in calculating it— Inland Revenue v. Alexander's Trustees, January 10, 905, 7 F. 367, 42 S.L.R. 307. The case of Hacket v. Gardiner, [1907] 1 Ch 385, was precisely in point. The question had therefore been decided in England in favour of the first parties' contention. The payment of the rateable part of the estate duty was a burden which had been imposed by statute on the marriage-contract trustees. They must discharge it—Bell's Prin., sec. 121. There was no stipulation here that the provision should be

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free of duty— in re Parker-Jervis, [1898] 2 Ch 643. Berry v. Gaukroger, [1903] 2 Ch 116 ( per Vaughan Williams, L.J., at 131), was also referred to.

Argued for the second parties — The £30,000 was a debt due by the testator to the second parties. Section 7 (1) of the Finance Act provided that in estimating the value of the property which was to pay estate duty, allowance should be made for debts. No doubt it had been held in Inland Revenue v. Alexander's Trustees ( sup. cit.) that the £30,000 was not a debt which the first parties were entitled to deduct in ascertaining the value of the testator's estate for estate duty purposes, but that did not mean that it should not be regarded as a debt when the question was whether the creditors should relieve the representatives of the debtor of the proportion of the duty applicable to the amount of the debt. Further, the last words of sec. 14 (1) of the Finance Act showed conclusively that the sub-section did not apply to the case of debtor and creditor, because it was an unheard-of thing to have a stipulation in a document of debt that the creditor should not pay any part of the debtor's death duties. Reference was made to Wade v. Wade, [1890] 2 Ch. 276, and to in re Trenchard, [1905] 1 Ch 82.

At advising—