Chan Chun Wai v. Commissioner of Estate Duty

HCMP000001/1986

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

ESTATE DUTY APPEAL NO. 1 OF 1986

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BETWEEN

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Coram: Hon. Mr. Justice Macdougall in Court

Date of hearing: 2nd March 1987

Date of delivery of judgment: 13th March, 1987

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JUDGMENT

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1. This is an appeal under section 21 of the Estate Duty Ordinance (Cap. 111) against an assessment of duty by the Commissioner of Estate Duty ("the Commissioner") in relation to an estate for which the appellant claims relief under section 31 of the Ordinance on the ground of quick succession.

2. The appellant is the executor of one Ho Woon Yin ("the second deceased") the deceased wife of Chan Kwok King ("the first deceased"). The first deceased died intestate on 23rd July 1976 and, due to the operation of section 4(3) of the Intestates' Estates Ordinance (Cap. 73), his residuary estate stood charged with the payment of a net sum of $25,000 to the second deceased and one half of the balance of the estate was to be held in trust for her absolutely. There are five other beneficiaries to the estate under the intestacy.

3. Approximately four months later, but before the administration of the first deceased's estate, the second deceased died leaving a will crated 19th August 1976 in which the appellant was named as executor.

4. On 31st July 1985 the appellant claimed quick succession relief of the property owned by the first deceased to which the second deceased had become entitled as a consequence of the operation of sec. 4 (3).

5. The relevant portion of section 31 of the Estate Duty Ordinance reads as follows :-

"Where the Commissioner is satisfied that estate duty has become payable on any property consisting of leasehold property or a business (no being a business carried on by a company), or any interest in leasehold property or such a business, passing upon the death of any person, and that subsequently within 5 years estate duty has again become payable on the same property or any part thereof passing on the death of the person to whom the property passed on the first death, the amount of estate duty payable on the second death (if the death occurs on or after 27 February 1931), in respect of the property so passing shall be reduced as follows :-

6. The estate of the first deceased consists of leasehold properties or interests therein to a value of $3,280,140 and other assets valued at $8,079,419 and comprised mainly of shares, monies due from a debtor and bank or investment company deposits and accounts. The value of the leasehold property is thus only 29% of the total value of the estate.

7. After considerable correspondence from July 1985 to September 1986 between the solicitors for the appellant and the Commissioner, in which the arguments advanced were not as consistent and lucid as they might have been, the Commissioner finally rejected I the appellant's claim for relief. In so doing he gave as his reason that the same property had not passed on the death of both deceased, since under the intestacy, apart from the $25,000 statutory legacy, the second deceased had only become entitled to one half of the residue of the first deceased's estate, and that in such circumstances the second deceased was not entitled to any specific asset in the estate. In support of his decision the Commissioner referred to Lord Sudely v The Attorney General [1897] AC 11 and Lau Yiu Sum v Commissioner of Inland Revenue HKTC Vol. 2 page 1.

8. Mr. Ronny Wong, who appeared on behalf of the appellant at the hearing of this appeal, contended that on the basis of the reasoning of their Lordships in the Scottish Court of Session in Warren v The Lord Advocate (1928) SC 806, the Commissioner's decision is plainly wrong and that the line of authority from Sudely through Dr. Barnardo's Homes National Incorporated Association v Commissioners for Special Purposes of the Income Tax Acts [1921] 2 AC 1 (HL) to Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 (PC) is not relevant to section 31. Likewise he distinguished the decision of Clough J, as he then was, in Lau Yiu Sum.

9. Sudely and Barnardo's Homes were cited to their lordships in Warren and Lord Sands observed at page 816 of the report :-

10. Section 15 of the Finance Act 1914 to which Lord Blackburn was referring is couched in almost identical terms to the relevant portion of section 31 with which this appeal is concerned, except that instead of the word "land" in section 15, the words "leasehold property" appear in section 31. It is not contended that this is in any way material to the disposal of this appeal. Moreover, the property involved in Warren was not land but that relating to a business. Again, neither party suggested that anything turns on that distinction.

11. Warren appears without adverse comment in successive editions of Dymond's Death Duties, including the present one. More important, in the comparatively recent case of Livingston on which Mr. Hinchen places great reliance, the Privy Council made no reference to Warren.

12. Had Warren been relevant to Livingston it seems highly unlikely that their Lordships would not have referred to it and that counsel would not have cited it.

13. I do not propose to embark on an analysis of Sudely, Barnardo's Homes or Livingston because I do not think that they are strictly pertinent to the matter before me. None of them is concerned with an overseas counterpart to our section 31.

14. In interpreting an Ordinance it is necessary to give effect to its true intent meaning and spirit. In this connexion I refer to section 19 of the Interpretation and General Clauses Ordinance (Cap. 1)

"An Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit."

15. Accordingly, since the object of section 31 is to give relief from estate duty in respect of quick succession where property consists of leasehold property or a business, it is the duty of a court to give such meaning to the words "the same property or any part thereof passing on the death of the person to whom the property passed on the first death" as best ensures the attainment of that object.

16. If the meaning for which Mr. Hinchen contends is correct, namely that property of the first deceased cannot be said to pass to the second deceased until the administration of the estate of the first deceased has been completed, and likewise, that that property does not pass to the second deceased's beneficiary until the administration of that deceased's estate has also been concluded, the true intent, meaning and spirit of the Ordinance as reflected in that section is likely to be frustrated.

17. The shorter the time spar between the death of each deceased the greater is the likelihood that the administration of the first deceased's estate will not have been completed before the death of the second deceased, I do not believe that it was the intention of the legislature that where the deaths of the deceased follow in quick succession the applicant should be less likely to receive relief than where there is a longer period between the deaths.

18. It would run counter to the spirit and intendment of the section to give to the relevant words a technical or legalistic interpretation. In my view it does no violence to language to give to these words their normal natural and everyday meaning, namely, a passing of a beneficial interest in the property, not a strict legal devolution of title. Lord Clyde observed at page 813 of Warren :-

"To whom then did the property of the residue (so far as consisting of a business) pass when the testator died?

It does not appear to me to be relevant to say that the residue passed to the testator's trustees, for they only hold and administer it for others. I think it passed - as a constituent fact of the testator's whole residue, heritable and moveable - to the daughter."

19. With the greatest of respect I agree with what their Lordships decided in Warren. If, therefore, the facts of the present case can be fitted into the same mould as that in Warren I would have no hesitation in allowing this appeal.

20. Mr. Wong devoted his submission almost exclusively to whether Warren was correctly decided and whether Sudely, Barnardo's Homes, Livingston and Lau Yiu Sum are relevant to this appeal. Having referred to the first three of those cases, I now turn to a consideration of Lau Yiu Sum, a case concerning section 10A(1) (a) of the Estate Duty Ordinance.

21. There, a deceased who had purchased a residence in 1962 and occupied it with his wife as a matrimonial home, died intestate later the same year. He was survived by his wife, concubine and eight children of whom the appellant was one. The appellant who was treated as an executor of the estate within the meaning of section 3(1) of the Ordinance, made a claim for relief under section 10A(1) (a) from payment of estate duty on the residence. The sole issue for determination was whether the residence had been devised or bequeathed by the deceased, or had otherwise passed on his death, to or for the benefit of his spouse.

22. Clough J held that the residence did not pass to the spouse on the death of the deceased but that the interest conferred by the intestacy legislation on the wife and concubine was an interest in the proceeds of sale of the estate and they had no entitlement to the specific asset, the residence. In his view section 10A(1) (b) only applies to a case where the relevant spouse has an absolute entitlement to hold or have an absolute right to the benefit of the property as the object of a trust.

23. In so holding, however, he went on to say at page 8 :-

"When construing a section of this nature it is always desirable, if possible, to construe it in such a manner that all its provisions have some effect. In this section the words "or otherwise passes on his death" are clearly intended to have some operation beyond a devise or bequest by the deceased.

In my judgment one situation where these words would operate is on an intestacy where one spouse survives the other and there are no issue of any degree and no other person mentioned in section 4(2)(b) of the Intestates' Estates Ordinance so that for the purposes of the intestacy legislation the surviving spouse becomes absolutely entitled to the proceeds of sale of the deceased's estate. In that situation it is strongly arguable that the property is from the deceased's death held as part of his estate "for the benefit of" the surviving spouse. In my judgment that is one situation in which this provision could operate. I do not think that it is pertinent that I should explore others but it is quite clear in my view that the situation which has arisen in this case is outside the provisions of this exemption."

I respectfully echo this view.

24. In the present case the second deceased is only one of six beneficiaries under the intestacy of the first deceased. Thus, since she was only entitled to $25,000 and one half of the residue, with the other half passing to the benefit of the issue of the first decased, and since the leasehold properties and interests in leasehold properties form only 29% of the total estate of the first deceased, I am unable to say that same property or any part thereof had passed to her on his death.

25. Had she come within sec. 4(2) of the Intestates' Estate Ordinance the situation would have been entirely different, because in the absence of any issue, parent, brother or sister, or issue of a brother or sister of the first deceased, she would have become absolutely entitled to the first deceased's estate. In accordance, therefore, with the view I have expressed on Warren, the property in question would have passed to her on the death of the first deceased.

26. I regret that I must dismiss this appeal.

Representation:

Mr. Ronny Wong instructed by M/S Deacons for the appellant

Mr. D.M. Hinchen, Crown Solicitors for the Commissioner of Estate Duty - respondent