Li Fook-shu and Others v. Commissioner of Estate Duty
Read the full judgment text of CACV 92/1979 on BabelCite. This Court of Appeal judgment.
1. This is another happy little appeal under the tax legislation. It raises two questions:
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CACV000092/1979
----------------- Coram: Sir Alan Huggins, V.-P., Cons, J.A. and Penlington, J. Date of Judgment: 6th January 1981. ----------------- JUDGMENT ----------------- Sir Alan Huggins, V.-P.: 1. This is another happy little appeal under the tax legislation. It raises two questions:
2. The testator devised and bequeathed all his estates real and personal whatsoever and wheresoever to trustees upon trust for sale. After payment of debts and proper expenses the residue was to be held upon trust, inter alia,
The trustees appointed one charitable institution within the Colony and their right so to do is not in issue. Roughly three quarters of the testator's property was in Hong Kong and one quarter outside Hong Kong at the time of the death and it is apparently common ground that, for convenience, all but $40,000.00 of the donation was in fact paid from the proceeds of sale of the foreign property. The Commissioner of Estate Duty took the view that as the residuary estate, out of which the donation was payable, included the proceeds of sale of property abroad, which was not liable to Hong Kong estate duty, there ought to be an apportionment of the amount of the donation so as to avoid what had the appearance of an allowance against property which was in any event not liable to tax, and an assessment was made accordingly. On an appeal by the executors to the Full Bench that court upheld the Commissioner's decision, but we do not have the benefit of any reasoned judgment, which we think is unfortunate. 3. The first question for consideration is whether there was any property which came within s. 10(g) at all. The paragraph reads:
On the plain words of the will the property was not bequeathed "to" a charity but to the trustees. Upon the grant of probate the property would pass to them with effect from the date of the death. The trustees were not to take any beneficial interest. The gift to them was "for the benefit of "a charity, but it was not necessarily "for the benefit in the Colony of" such charity: that depended upon the exercise of the power of appointment. It was contended on behalf of the Commissioner that, if, under the terms of the will, a gift is not limited so that of necessity the benefit is within the Colony, there is no exemption at all. Here, Mr. Lee submitted, the will permitted the trustees to make an appointment which would not be "to or for the benefit in the Colony of any charitable institution" within the meaning of the section and the fact that the charity appointed was wholly within the Colony was irrelevant. His contention was, therefore, that strictly the Commissioner could have refused to make any deduction at all under s. 10(g), that the fact that a deduction was allowed was an act of grace and that it was reasonable to limit the deduction to such proportion of the donation as the estate chargeable to tax bore to the worldwide estate. Mr. Goodbody for the executors argues, first, that the will should be interpreted as limiting the power of appointment to the appointment of Hong Kong charities only and, secondly, that the fact that the charity appointed by the trustees was wholly within the Colony was very relevant, for the appointment was in effect part and parcel of the testamentary disposition, although he conceded that the property did not pass "to" the charity until the time at which the trustees made the appointment. 4. For the first of his arguments Mr. Goodbody relied upon Perrin v Morgan 1943 A.C. 399 and In re Jebb 1966 Ch. 666 as laying down the general proposition that a will must be liberally interpreted so as to achieve the testator's intentions. He goes on to submit that the evidence in the affidavits (one of which was not before the Full Bench) establishes that the testator was "a Hong Kong man", who would never have contemplated making a donation to a charity outside the Colony. We think this argument fails. No doubt, where the evidence is such that a strict interpretation of the language used by the testator would manifestly defeat his aims, the court will adopt a more liberal interpretation, but the general rule remains that the aim of a testator is to be ascertained from a strict interpretation of the words he has used. In re Jebb shows clearly the sort of case where the exception applies. A testator had a son and two grandsons and a daughter who at the time of the will was unmarried and aged 47 years. He executed the will with full knowledge that the daughter had recently adopted a baby boy and he made a gift of the residuary estate upon trust for the child or children of his daughter and of a named grandson on specified conditions. It was held that the testator must have known that it was extremely improbable that his daughter would have any natural children of her own and must, therefore, have intended that adopted children should benefit, even though the word "child" was normally to be understood to refer only to a natural child. It is impossible to say in the present case that there was a similar extreme improbability that a Chinese testator with assets overseas would contemplate benefiting a charity outside the narrow limits of the Colony. If the trustees had appointed a foreign charity it is inconceivable that that appointment could have been successfully challenged. 5. The argument on the second point is really not capable of elaboration. On behalf of the Appellant what it amounts to is perhaps most clearly stated in this way:
The contrary argument is, of course, that until the appointment was made the appointed charity had no beneficial interest in the property but merely a right to insist that it be considered by the trustees as a possible recipient of the testator's beneficence. Therefore, on the death no one could have said that the property was held on behalf of the charity which was subsequently appointed, and what mattered when interpreting s. 10(g) was the terms of the will and not what was in fact done under the will. Although I confess that the strict view contended for by the Commissioner attracted me in the first instance, we think its adoption would defeat the intention of the Legislature, which is clearly to encourage testamentary gifts to local charities. That object can be achieved as well where the charity is named by trustees in the exercise of a power of appointment as where it is named by the testator himself. 6. Where there is a gift which is within s. 10(g) and is to be met out of residue which includes property situate outside the Colony, we understand the practice of the Commissioner is to make an apportionment, as he did in this instance. Whether that is a correct practice or not was hardly canvassed before us. Counsel for the Commissioner put forward nothing in support, whilst counsel for the tax payer contented himself with the mere suggestion that it was wrong. 7. Doing the best we can in the circumstances, we take the view that the Commissioner was right. The same property cannot be exempted twice over; yet that would be the result if exemption were granted in full against only the Hong Kong part of the residue, for by its terms the will imposes the burden of the donation upon the whole of the residue. To put it in another way, no estate duty has in fact been charged on any part of the charitable donation which came from property already deducted from the worldwide assets under the heading "Foreign Estate". As a pure matter of accounting that must be right. It is not the gift which is exempt but the property from which the gift is to come, and accordingly it is not necessary that there should be any express provision for apportionment. It would be open to a testator with assets abroad to stipulate that any charitable donation should be paid out of that part of the residuary estate which was within the Colony at the date of his death. No question of apportionment could then arise. 8. In the result we do not support the Commissioner in his contention that none of the property comprised in the gift was within s.10(g), but we dismiss the appeal on the ground that it was proper not to allow exemption under that paragraph in respect of property already exempt from duty. 6th January 1981. Representation: |