Re Stratton's Disclaimer.; Stratton v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE JENKINS |
| Judgment Date | 06 June 1957 |
| Judgment citation (vLex) | [1957] EWCA Civ J0606-2 |
| Date | 06 June 1957 |
| Court | Court of Appeal |
[1957] EWCA Civ J0606-2
In The Supreme Court of Judicature
Court of Appeal
Lord Justice Jenkins
Lord Justice Sellbrs And
Mr Justice Rokurgh.
In the Matter of a Deed of Disclaimer made on the 28th May 1951 under the hand and seal of Fanny Stratton (now deceased).
The Hon. CHARLES RUSSELL, Q.C. and MR A.J. BELSHAM (instructed by Hessrs Hackrell, haton & Co.) appeared as Counsel for the Appellants.
MR J. PENIYCUICK, Q.C. and MR R.B STAMP (instructed by the Solicitor of Inland Revenue) appeared as Counsel for the Respondents.
: The Judgment I am about to read is the judgment of the Court in this case.
This is an appeal by three brothers,. the Plaintiffs Frederick, William and Stanley Stratton, who are the Exeoutora of their Mother, Mrs Fanny Stratton, deceased, and residuary legatees under the Will of their Father, Mr Frederick William Stratton, deceased (whom I will call "the testator"), from an Order of Mr Justice Danckwerts dated the 21st November 1956, whereby he upheld a claim on the part of the Defendant Commissioners of Inland Revenue to the effect that by virtue of Section 45(2) of the Finance Act 1945 a liability for Estate Duty arose on the death of Mrs Stratton under Section 2(1)(c) of the Finance Act 1894 (as amended) in respect of certain property given to Mrs Stratton by the Testator's Will but disclaimed by a Deed of Disclaimer executed by her within five years of her death.
The Testator by his Will dated the l6th July 1946, and proved on the 2nd November 1950 by his son Frederick and his widow Mrs Stratton, the Executors therein named, gave to Mrs Stratton various benefits including certain policies of insurance on his life and (in the events which happened) his freehold property Nos. 15 and 16 Bruce Grove, Tottenham, and gave to his three sons (inter alia) the residue of his real and personal estate.
The Testator died on the 20th October 1949, and by a Deed of Disclaimor dated the 28th May 1951 Mrs Stratton irrevocably disclaimed and renounced all beneficial interest to which she was or might be entitled under the Testator's Will in the policies and freehold property referred to above.
The Deed contained no reference to the destination of the policies and freehold property thereby disclaimed, but the effect of it plainly was to bring about a total failure ab initio of the gifts to her of these assets contained in the Will, with the result that they fell into residue for the benoflt of the threo sons as residuary legatees and devisees,
Mrs Stratton died on the 27th June 1953, a date well within five years of the Disclaimer. Clearly if she had accepted the gifts made to her by the Will and had then within five years of her death transforrod the assets comprised in them to her three sons by way of gift, Estate Duty would have been exigiblo on her death in rospect of such gift by virtuo of Section 2(1)(c) of the Finance Act 1894, the provisions incorporated therein of Section 38 of the Customs and Inland Revenue Act 1881 and Section 11 of the Customs and Inland Revenue Act 1889, and the extonsions of the liability to duty first to gifts made within three years of the death by the Finance (1909-10) Act 1910, and then to gifts made within five years of the death by the Finance Act 1946. But instead of proceeding by way of accoptanco and transfer, Mrs Stratton (as one would expcet in the circumstances) preferrod to achieve substantially the same rosult by the simpler and choaper method of a disclaimer, which did not transfer her intcrost to the three sons by way of gift but destroyed her intorost with the legal consequonce that the disclaimed assets fell into residuo for their benofit.
The question in the case is whether Section 45(2) of the Finance Act 1940 has the effcet of extonding the liability to duty on gifts intor vivos imposrd by Soction 2(1)(c) of the Finance Act 1894 (as amended) to the compmrable benefit conferred on a rosiduary legatee or dovisee by means of a disclaimer, whercby the subject matter of the gift disclaimed is caused to sink into the rcsidue to which he is ontitled.
Soction 45 of the Finance Act 1940 (the side note to which is "Gifts by way of creation of burden or roloaso of right") is in those terms:
"45(1) The croation by a person or with his consent of a debt or other right onforceable against him porsonally or against property of which he was or might brcowe competent to disposr, or to chargo or burdon for his own benrfit, shall be doomed for the purposes of the enactments relating to estate duty, including this Part of this Act, to have been a disposition made by that porson, and in relation to such a disposition the exprossion 'property' in the said enactments shall incluae the debt or right createde"
"(2) The extinguishment at the exponse of the deceased of a debt or other right shall be deemed for the purposes of the said enactments to have been a disposition inade by the deceased in favour of the person for whose benefit the debt or right was extinguished, and in relation to such a disposition the exprossion 'property ' in the said onactmonts shall include the benefit conforred by the extinguishment of the debt or right".
Then I should also read sub-section 3: "The provise to section 4 of the Financo Act 1894 (which excepts from aggregation preperty in which the deceased novor had an interest) shall not have offect in relation to property passing on the death of the decoased which consists of a dobt or right or benofit that is treated as property by virtue of this section",
It will be seen that to found liability under sub-section (2) of the soction thore must be (1) a dedt or other right, and (11) an extinguishmont of that debt or other right, (a) at the expense of the deceased, and (b) for tho benefit of some other porson, Whore these olements are present the enactment iwputos to the doceased for estate duty purpeses a disposition in favour of the porson for whose bonefit the debt or right was extinguished of property consisting of the benefit conforred by such oxtinguishment, This produces the rosult that the bonefit conferred by a transaction falling within the ambit of sub-soction (2) of Soction 45 of the Act of 19l40 is to be treated as "property… taken under a disposition made by 'the doceased' purporting to oporate as an imrucdiate gift inter vivos" within the meaning of Section 2(1) (c) of the 1894. Act and the provisions incerporated theroin of Section 38(2)(a) of the Customs and Inland Rovonuo Act 1881, and is therefore to be decmed under Section 2(1) (c) of tho l894. Act to pass, and accordingly attract ostato duty, on the doeth of tho decoased within tho statutory poriod (now five years) of tho making of such disposition.
The application of Section 45(2) of the 1940 Act to tho transaction now in question thus demands an affirmativo answer to each of tho following quostions:
(1) Did Mrs Stratton have a "right" in respect of tho policios and froohold property bequeathed and deovised to hor during the poriod between the death of tho Testator and the exacution of the Dood of Disclaimor?
(2) If so, did tho disclaimor bring about an "extinguishmont" of that right?
(3) If so, was such extinguishmont effected "at tho exponse of" Mrs Stratton?
(4) If so, was tho right extinguished "for" the "benefit" of the three sons?
As to tho first question, wo were reforred to certain authoritios bearing upon tho right to disclaim, tho effect of disclaimer and tho position of a legatee or devisce ponding disclaimer.
In Townaon v Tickell, 3, Barnewall & Alderson, 31, Chief Justice Abbott at page 36 said this:
"The law certainly is not so absurd as to force a man to take an estate against his will Prima facie, every eatate, whothor given by will or otherwise, is supposod to be beneficial to tho party to whom it is so given Of that, however, he is the best judge, and if it turn out that tho party to whom the gift is made does not consider it beneficial, the law will certainly, by some mode or other, allow him to reneunce or refuse the gift",
Then after referring to tho caso of Thomson v. Leach Chief Justice Abbott went on:
"That learned Judge exprossly states" — that was Mr Justice Vontris — "that a man 'cannot have an eatate put into him in spito of his teeth'. I conour in that opinion, and think that tho renunciation here having been by deed under tho hand and seal of tho party, must have tho effect of making the devlae with rospoct to him null and void, and, consequently, that there must be judgment for the plaintiff".
Then Mr Justice Bayloy said this:
"The good sonse of the thing is quite the other way; the law indeed prosumes that the estate devised will be beneficial to tho devisce, and that he will accept of it, until there is proof to tho contrary. Here is a ronunciation by a most solemn act, vizt, by deed; and by that he has said that ho did not choose to accept that which is dovisod to him. It seeins to me that the effect of that is that tho estate never was in him at all. For I consider the devise to bo nothing more than an of for which tho devisce may accopt or refuse, and if ho refuses, ho is in the same situation as if tho offer never had been made; and that tooing so, I am of opinion that tho disclaimor in this case was sufficient, and that there ought to be judgment for the plaintiff".
Thon Mr Justice Holroyd said:
"I think that an estate cannot be forced on a man, A devise, however, being prima facie for the devisce 's benefit, he is supposed to assont to it, until he does some act to show his dissont. The law prosumos that he will assont until the contrary be proved; when...
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