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Case and Comment
CHARITABLE TRUSTS-"CHARITABLE OR PHILANTHROPIC PURPOSES"
-POWERS OF APPOINTMENT-VOID FOR UNCERTAINTY.-When
a would-be testator decides to draw his own will, unless it be of
the very simplest character, his chances of using^ words which
will, in law, achieve desired objectives are, to say the least, fairly
remote. The layman is usually advised, and quite properly so, to
"consult a lawyer". Yet the decisions of the courts must often
lead the observer to conclude that the hazards^ of testamentary
seas are so formidable that a testator's treasure ship may flounder
on unforeseen rocks in spite of the assistance of the ablest legal
pilots. Such was the case in^ Brewer v. McCauley,'^ a recent deci-
sion of the Supreme Court of Canada, on appeal from Harrison
J. in the Supreme Court of New Brunswick.'
The testatrix, having made a number of specific bequests of
approximately $228,000 to her next of kin and of $20,500 to speci-
fic charities, directed her executors to apply her residuary estate,
valued at $600,000, "for charitable, religious, educational or phil-
anthropic purposes".^ After^ this^ disastrous^ opening^ the^ clause
continued to provide that the executors were to have special powers
of appointment to distribute, at their discretion, the residuary
estate for the aforesaid purposes provided they were within the
province of New Brunswick. A second clause provided that, "with-
out restricting the generality of the foregoing special Powers of
Appointment I express the wish that a special Trust, Scholarship
or Foundation or more than one, be established and named.. .",
in the name of the testatrix or her late husband.
On the initial application for directions as to the validity of
these provisions Harrison J. did what he could to preserve some-
thing of the testatrix's objectives, which had undoubtedly been
expressed in unfortunate phraseology. He felt compelled by Eng-
2 [1954] S .C .R. 645 ; [1955] 1 D.L .R. 415.
2 (1954), 34 M .P .R.^ 66 ;^ sub mom .,^ Re Loggie, Brewer and Murray^ v.
McCauley et al.
1955] Case and Comment^335
fish decisions to hold the first clause void for uncertainty, but ac.
ceded to the argument that the second clause established a valid
charitable trust in favour of education. Accordingly he directed half of the residue to be applied for this purpose, the remainder going to the next of kin. The Supreme Court of Canada varied this direction in holding that the whole trust of the residue was void for uncertainty because it was not confined to charitable pur- poses. The argument in favour of charity rested on two bases. The first was that the word "or" in the phrase "for charitable, relig- ious, educational or philanthropic purposes" should be construed as "and". In both courts this construction was rejected on the basis of the decision of the House of Lords in Chichester Diocesan Fund & Bd. ofFinance (Incorp .) v. Simpson' This decision is representative of one of the most unsatisfac- tory portions of the law of trusts. Equity leans towards charity in that the settlor of a charitable trust may leave the objects of his bounty unspecified, provided that those objects are made 'clearly and exclusively charitable, within the technical definition of^ Pem- sel's case. 4 On the other hand, the existence of even the most re- mote possibility that the trustees might, whilst acting within the terms of the trust, apply the trust funds to non-charitable purposes will vitiate the whole trust. Sometimes the courts have held that words such as "charit- able or benevolent" really mean "charitable and benevolent", that is to say, charitable objects which were also benevolent ob jects.' In these cases gifts are upheld as valid charitable trusts. In other cases, as in the present one, the opposite result is reached.' A similar situation arises where the testator uses the word "and"
to link general charitable and non-charitable purposes ; the .cases fall on either side of the line in an apparently arbitrary fashion. The lawyer can do no more than hazard a guess as to which con- 1[1944] A.C. 341 (The Diplock case). 4 [18911 A .C. 531. e For example, Re Allen, [1905] 2 Ch. 400 (Swinfen Eady J .) ; Clark v. Attorney General and Pritchard (1914), 33 N .Z .L .R. 963 (Denniston J.) ; Re Ludlow (1924), 93 L.J. Ch. 30 (C .A .) ; Re McClellan (1918), 46 N.B.R. 161 (White J .). (^6) For example, Houston v. Burns, [1918] A.C. 337 ; Chichester Diocesan Fund v. Simpson, [19441 A.C. 341 ; Re Macduff, [1896] 2 Ch. 451^ (Stirling J .) ; Re Poole (1931), 40 O .W .N. 558 (Riddell J .A., following ReMacduff). 7 Re Best, [1904] 2 Ch. 353 (Farwell J.) ; Caldwell v. Caldwell (1921), 91 L .J.P.C. 95 (on appeal from the Court of Session) -"and" construed as conjunctive so that the trust was valid.^ Cf.^ Attorney General for New Zealand v. Brown,^ [1917] A .C. 393 (P .C .) ;^ Attorney^ General v.^ National Provincial Bank,^ [1924] A.C. 262 (H .L.)-"and" construed as disjunctive so that trust was invalid.
1955] Case and Comment^ 33 7
their wishes frustrated by a technical rule of law. These three enact- ments and their apparently successful application in practice would seem to reinforce the argument that testators should be protected, by the legislature, from the consequences of their own folly or the mis- takes of their draftsinan..
After this promising analysis of the present law comes the com-
mittee's most -astonishing reasons, if they are even worthy of be-
ing called reasons, for rejecting the idea of amending legislation :
We have said .that the principle that every person must be presumed to
know the law is of fundamental importance. Even the interests of
charity would not justify the dangerous precedent which would be established by an exception to this principle. The correct drafting of a gift or bequest to charity is difficult ; so too is the- drafting of many other legal documents.... charitable trust instruments already enjoy important privileges.... To protect charitable instruments, alone a- mong legal documents, from the consequences of mistakes in their drafting would, in our opinion, be an unwarranted extension of these privileges ."
The committee did ,however recommend legislation to validate a
large number^ df existing trusts which, having been successfully
administered for a number of years, were suddenly found to be
invalid because some of their secondary objects were strictly non-
charitable .-The two cases which drew attention to this situation
were Ellis v. Commissioners of Inland Revenue" and Oxford
Group v. Commissioners of Inland Revenue." As a result of the
committee's recommendation the Charitable Uses (Validation)
Act, 1954,^16 was enacted to validate those trusts which had already
been created, but not any similar trusts which testators might at-
tempt to establish in the future. The provisions of this^ English
act seem wide enough to validate trusts of the Diplock and Brewer
type, which are already in existence and have not been challenged,
but, of course, the position of future trusts remains unchanged. 17
(^12) Para. 533, at p. 132. (^11) Ibid., para. 534. In paragraph 535 the committee states, presumably in all seriousness, "A testator must say what he. means in words apt in law to achieve the purpose he desires and, consequently, he must be taken to have meant what he said. From this it follows that every will must be construed as it stands. To require the Court to determine, not what the testator has said but what he intended to say, would be to throw an intolerable burden on it, and to create a state of uncertainty in the minds of all testators and their legal advisers as to (^) what necessarily might eventually be read into their words [my italics]." The irony, of this argument is, of course, that the portion in italics is aptly descriptive of'the position under the existing law .. (^11) (1949), 31 T .C. 178 (C.A .): 15 [1949] 2 All; E.R. 537. (C.A.). 11 2 & 3 Eliz. 2, c. 58. 17 .For an interesting account of the background to, and provisions of the act, see Spencer G. Maurice, Validation of Charitable Trusts (1954), 18 Conv. and Prop. Lawyer 532.. ,
338 THE CANADIAN BAR REVIEW [VOL. XXXIII
Since the Supreme Court of Canada in the Brewer case has
now expressly incorporated the Diplock case and its idiotic lin-
guistic gymnastics into Canadian law, it seems obvious that a good case can now be established, for the enactment of ameliorating
legislation by the provinces on the lines of the New Zealand and
Australian acts. This, of course, will provide cold comfort for the charities which might have benefited in the instant case. It will be recalled that the testatrix in Brewer v. McCauley had expressed the desire, in a supplementary clause, that the trustees should establish "a special Trust, Scholarship or Foundation" and the argument, which found favour with Harrison J. at first instance, was that this established a valid educational trust which could be severed from the obnoxious^ "charitable... or philan- thropic" phraseology in the principal clause. The Supreme Court rightly rejected this argument on the ground that the context of the will clearly indicated that the trustees' discretion in the prin- cipal clause extended to the whole fund and there was no fiduciary obligation imposed on them to establish an educational trust even if the words "a special Trust.. ." could be so construed. The second argument advanced in favour of the validity of the gift to charity was that the testatrix had given her trustees a power of appointment to allocate the funds among mixed general pur
poses and, being a power of appointment as distinct from a trust,
the rules on certainty of objects were inapplicable. This particular argument does not seem to have been put before Harrison J. at
first instance. It appeared in the factum presented to the Supreme
Court on behalf of the Attorney General for New Brunswick in these words :
If it^ is^ a good^ power^ of^ appointment^ the^ Court is^ not^ concerned whether the objects are charitable since the trustees have complete discretion.... the Court can ignore all the technical distinctions so artificially woven into English law respecting charities.
This argument really involved three related questions: (a) Did the words of the will create a special or general power of appointment or neither? (b) Is there any fundamental distinction between a testamen- tary trust and a testamentary power of appointment? (c) In more general terms, to what extent, if at all, can a testa- tor leave the choice of beneficiaries to others? Professor A. W. Scott has pointed out" that any rule of public
is (^) Trusts for Charitable and Benevolent Purposes (1945), 58 Harv. L. Rev. 548, at p. 566. For a discussion of the distinction between powers of appointment and trusts in^ inter-vivos^ documents, see Gilbert D. Kennedy,
34 0 THE CANADIAN BAR REVIEW [VOL. XXXIII
v. McCauley,^ although^ in^ both^ cases^ the attempted^ gifts^ were
frustrated.
In conclusion^ two^ recommendations^ may be^ summarily re-
stated. The first is that legislation now appears necessary to free
Canadian courts from^ the burden of hair-splitting English pre-
cedents concerning the mixture^ of testamentary^ charitable and
non-charitable objects of a general nature. The sensible statutes
in New Zealand and two of the Australian states provide sound
legislative precedents : cases such as Brewer v. McCauley, the justi-
fication. Secondly, with the greatest respect, the Supreme Court of
Canada must face up to its responsibility, as our final appellate
court, for moulding the jurisprudence of this country in accordance
with its peculiar needs. This responsibility can only be discharged
by the handing down of judgments which contain the fullest an-
alytical examination of the legal issues involved, and their bases,
and by making new contributions to the common law and equity
which this country has inherited.
ERIC C. E. TODD
SUPREME COURT OF^ CANADA-STARE DECISIS-R6LE^ OF^ CANADA'S
FINAL COURT-UNSATISFACTORY NATURE OF REASONS FOR JUDG-
MENT .-My colleague, Mr. Todd, has just commented upon one
aspect of the unfortunate decision in Brewer v. McCauley' and
has suggested another in his last sentence. I agree with his remarks,
but should like to add something about the r61e of a final court of
appeal, using the Brewer case as an example. In that case, five of
the nine judges of the court sat. Reasons for judgment were given
by Rand and Kellock JJ. The three other judges concurred with
Kellock J. The matter involved the residue of an estate, a sum of
approximately six hundred thousand dollars. The question of law
was of sufficient importance that an appeal was taken per saltum.
The one-and-a-half page judgment of Rand J. can be summar-
ized fairly as follows :
Notwithstanding (^) the exhaustive argument of Mr. Carter, I have no doubt about what our judgment should be.... [T]he residue is to be given and applied `for charitable, religious, educational or philan- thropic purposes'.... [T]he last word is indistinguishable from 'bene- volent' and admittedly the authorities in England have pronounced on
both of them.... Chichester v. Simpson 2.... The appeal must, there-
*Eric C. E. Todd, LL.M. (Manchester) ; of Lincoln's Inn, Barrister- at-law ; Lecturer in Law at the University of British Columbia. 1 [1954] S.C.R. 645 ; [1955] 1 D .L.R. 415. 2 [1944] A .C. 341 (H.L.).
1955] Case and Comment^341
fore, be dismissed, and the cross-appeal allowed ; the judgment below should be varied so as to declare that the whole of the purported trust of the residue is void for, uncertainty....
Kellock J. in three and one half pages stated the facts and the effect
of the judgment below, recited in summary form^ some^ of the
arguments of counsel, and proceeded :^ '.
I do not think it necessary to discuss these arguments in detail. In my view, upon the language of this will it is impossible to read the. word or' as conjunctive. Accordingly, while the wordcharitable' must receive its technical meaning, and there is no difficulty about the words religious' andeducational', the presence of the word `philan- thropic' vitiates the gift. In my view, the case at bar is governed by the principle of the decision in Chichester Diocesan Fund v. Simpson. The earlier decision in^ Attorney-General for New Zealand v.^ Brown,^4 may also be usefully referred to.^ do^ this view the appeal fails... .s
A few remarks follow to the effect that a testator must not leave
it to others, save in charity cases, to select his beneficiaries. On this
point reference is made, not only to the Chichester case, but also to one or two other well-known cases. After disposing of the cross- appeal, his lordship continued
An argument was addressed to us on behalf of the Attorney Gen- eral for New Brunswick to the effect that as the testatrix had used, in the first sub-paragraph, a form of words which gives to her trustees a power of appointment for the purpose of allocating among the named purposes instead of simply constituting a trust for the purpose, the will was not open to the objection given effect to in the decisions to which I have referred. The argument may be disposed of by reference to the decision of Romer J., as he then was, in In re^ Clarke, at pages 419-20, with which I respectfully agree. I would therefore dismiss the appeal and allow the cross-appeal,.. .s
Brevity is a welcome change when we consider some of the lengthy summaries of facts which the court has had to set out in some re- cent cases. But has brevity not been carried too far here? Has the court dealt adequately with the problems before it? Neither report of the case tells us much of Mr. Carter's "ex- haustive argument". The appeal was brought by the executors (Brewer et al.) and by the Attorney General. Counsel (including Mr. Carter) appeared for the executors. Separate counsel appear- ed for the Attorney General. "Both supported the validity of the gift of the residue. The validity of this gift was an important point
(^3) Rand J., at pp. 646-647 (S.C.R.), 415-417 (D.L.R.). His lordship also referred to the Court of Appeal judgment in the Chichester case and to two other lower-court decisions. 4 [1917] A.C. 393 (J.C.P.C.).. 5 Kellock J., at p. 649 (S.C.R.), 418 (D.L.R.). (^6) At p. 651 (S.C.R.), 420 (D.L.R). .,
1955] Case and Comment 343
certainly to accept that verdict. For Canadian courts that may have been all very well when there was a Privy Council to "set the law right". If it ever was, it is no longer. The challenge to the bar and bench of Canada has been made; shall we accept it? Admitting all these difficulties, let me deal more specifically with the Brewer case. I have suggested that here the court has not
faced its responsibility. Were counsel deficient? Counsel for the
Attorney General, in their factum, invited the court to find, inter
alia, a valid charitable intent ; that the use of "philanthropic" was
not necessarily fatal. (as a question of interpretation, it might be
limited to charitable purposes) ; that "or" was not necessarily
disjunctive ; that, if there is a power of appointment, the court is not concerned with whether the gift is charitable or not ; and that,
in any event,
Canadian Courts have not invariably considered themselves bound by decisions of English Courts of higher jurisdiction. That is now especially true since the Supreme Court of Canada is the Court of last resort in Canada .'
The court's attention was drawn, in support of these arguments,
to the American Restatement of the Law of Trusts, to Canadian,
English, New Zealand and American cases (and especially to the
qualifying words in the judgments in the Chichester case itself),
to Austin Wakeman Scott's learned criticism of the Chichester
decision in the Harvard Law Review, to a number of leading
English and American works on trusts, to cases, and articles on
stare decisis and the effect of English decisions in Canada, and to
Laskin's valuable article in this review on "The Supreme Court of
Canada", 1 ° where the responsibilities and opportunities facing the
court (^) as a truly highest court are thoroughly canvassed. The
court may choose upon reflection in any particular case to adopt
and follow the reasoning of Privy Council and House of Lords
cases just as it may turn "to decisions of final courts in other com-
mon law and civil law countries", or it may choose a different so-
lution for the case before it.
Counsel for the executors, also appellants, expressly stated as the third ground of appèal :il
- The learned trial judge was not bound by the decision in Chichester Diocesan Fund v. .Simpson (1944) A.C. 341 or by decisions in other English and Judicial Committee of the Privy Council cases because :
' Factum of Attorney-General for New Brunswick, at p. 17. The italics are added. 1 ° (1951), 29 Can. Bar Rev. 1038, at pp. 1071-. lz Factum, of appellants Brewer and Murray, executors and trustees of the last will of Alexandra Loggie, at p. 4.
34 4 THE CANADIAN BAR REVIEW [VOL. XXXIII
(a) those decisions are distinguishable from the present case and (b) the Supreme Court of Canada is not bound by decisions of the House of Lords or lower English courts, or by decisions of the Judicial Committee of the Privy Council except in Canadian cases, and ought not, in the present case, to follow such decisions.
At page 11, they expressly submit, with reasons in support, that
the Chichester decision is wrong. And, at page 21, they say :
It is further submitted that, since the abolition of appeals from Canadian courts to the Judicial Committee (amendment to Supreme Court Act, C. 37, 1949 Statutes of Canada) the decisions of the House of Lords are no longer binding on this Honourable Court. They are of strong persuasive value but they are only persuasive, not binding. Therefore the decision in the Chichester case (1944) A .C. 341, even if not distinguishable from the present case, is not binding on this Court. It is true that in the Robins case (1927) A .C. 515 it was said that de- cisions of the House of Lords, were binding on Colonial courts. That case, however, was decided before the decision in A. G. for Ontario v. A ;-G. for Canada (1947) A .C. 127 and before the abolition of ap- peals to the Judicial Committee. It can no longer be said that this Honourable Court is in any sense a `Colonial court'. The House of Lords is not a part of Canada's judicial system. It was linked to our system through the Judicial Committee, and, now that the link is gone, its position is no longer one of authority but only of persuasion. Final appellate authority lies with the Supreme Court of Canada.^ [Italics added .]
These remarks are then enlarged upon in the factum and, repeating the submission that the Chichester case should not be followed, reference is not merely made to Scott's article but a short portion of it is quoted. None of these matters is discussed or mentioned in the court's
judgment.
I am not concerned, for the moment, with the merits of the decision in this case. I do draw attention, in this rather blunt way, to the failure by our Supreme Court to deal in a forthright man ner with these arguments of very great importance to Canadians, the living and the yet unborn. Counsel were not at fault here ; the court was fortunate in having such valuable briefs. The responsibi- lity for failure, if I am correct that there was a failure, must rest in this instance on the court. Unfortunately this is not an isolated instance. But it is enough to make Canadians pause and ask why the Supreme Court is not meeting our expectations of it as a highest court. This appeal involved only a matter of six hundred thousand dollars in a private estate in one province. If the result is unsatisfactory, it can be overturned shortly by a simple act of the New Brunswick legislature altering the disposition of the estate
346 THE CANADIAN BAR REVIEW [VOL. XXXIII
did the judgment in Larondeau v. Laurendeau) that there was an attempted testamentary gift that failed for non-compliance with the Wills Act. Doubtless Re Reid was not brought to the attention
of Mr. Justice Danis.' In the only other Canadian decision the writer has been able to discover touching the point and reported during the past twenty-five years, French v. French,' Mr. Justice LeBel, also of the High Court of Ontario, in the course of obiter dicta states : "In conclusion I should perhaps Add that if the de- ceased intended that the defendant should have the money re- maining in the joint account at the time of his decease, which is not at all clear, he could have made his intention effective in law only by means of a will". No authority is cited. What, then, is the law today in Ontario and other common- law provinces having comparable Wills Acts? Perhaps the explana- tion for its seemingly unsettled state lies in the relative scarcity of reported cases in point both here and in England and, one might suspect, also in a lack of diligence in preparation on the part of counsel who argued the Larondeau case. For though there may be a dearth of case law, there is hardly a lack of legal writing on this matter. An article by Mr. John Willis appeared in this review in 1936 9 and Dr. C. A. Wright wrote a comment in 1937 1 ° upon a
7 .Re Reid has, however, been considered in at least the following de- cisions in Ontario : Re Hodgson (1921), 50 O .L .R. 531 (Middleton J .) ; Parks v. Royal Bank of Canada (1922), 23 O .W .N. 194 (Latchford J.) ; Mathews v. National Trust Co. Ltd. (1925), 29 O .W.N. 110 (Rose J.) ; Woolcox (^) v. French (1927), 32 O .W.N. (^) 32 (Lennox J .), and Re Baechler (1931), 66 O.L .R. 483 (Garrow J.). 8 [19521 O .W.N. 806, O .R. 889. (^1) Willis, The Nature of a Joint Account (1936), 14 Can. Bar Rev. 457. His conclusion is worth quoting in full : "Doubt has recently been thrown upon the right of B to claim money deposited by A in the X Bank to the joint account of A and B by way of gift. Every one will agree with Lord Atkin that an argument which casts such a doubt is inconsistent with well-established banking practice and likely^ to^ impair the confidence^ in deposits made in joint names,'^ andnot attractive hearing for customers or potential customers of the bank'. [McEvoy v.^ The Belfast Banking Co ., [1935] A.C. 24, 43] Unfortunately the judgments of the three concurring Law Lords and the separate judgment of Lord^ Atkin^ in^ the^ McEvoy Case have only increased that doubt. The writer has therefore examined four legal theories upon which B might acquire the right^ that common sense and convenience alike demand that he should have. Three of them have been dismissed as unsound : (i) the orthodox theory which extends to a joint account the principles applicable to a transfer^ of stock^ into the joint names of A and B. : (ii) the theory of Lord Atkin that A, the depositor- donor, enters into a contract with the X Bank as agent for B the donee, which contract B may subsequently ratify : (iii)^ the theory that A in de- positing the money declares himself trustee of his claim against the bank for himself and B as joint cestuis que trust. The fourth theory, that in de- positing the money A simultaneously makes a contract with the bank and assigns his claim against the bank by writing under the Judicature Act to himself and B jointly, is no less fictional than the others, but it is preferable to them in that, so far as the writer can see, it does not run counter either
1955] Case, and Comment 347
most valuable and instructive decision of the High Court of Aus-
tralia," which decision, incidentally, disapproved of the Canadian
cases stemming from Hill v. Hill. In 1949 the present writer com-
mented 12 upon the English case of Young v. Sealey," which cited
with approval and followed the Ontario decision in Re Reid.
=Young v. Sealey has also^ received attention in the Modern Law
Review,"' the Law Journal1s and the Conveyancer and Property
Lawyer ."
It is not intended in the present comment to discuss the sub-
ject anew or in any detail. The references here given should form
an adequate starting point for research, there being little useful
judicial discussion in recent years save in the Australian case in
1936,"' which has been spoken of as "one 'of the very few cases
which makes the proper analysis of conferring rights in a chose in
action as distinguished from rights to `money"'," and to the Eng-
lish (^) trial decision in 1948 11 already mentioned. The two recent'
Ontario judgments must, however, be deplored. It would not ap-
pear that counsel in either the French or Larondeau cases were
aware of the considerable authority, in Ontario and elsewhere, for
the proposition that the creation of a joint bank account could
constitute a valid present gift intervivos. Instead of clarifying the
law, these decisions ,tend to obscure it, since they fail to discuss
cases that are, it is submitted, entitled to some respect, and at-
tempt no resolution of the opposed approaches to the problem
which have bedevilled its solution in the past ." They also provide
to the intention of A or to any positive rule of law. Its novelty and com- plexity, however, render it a little suspect, and the writer submits it, and then with some diffidence, only because of a conviction that rio long time can elapse before a court will be faced with the problem of how to give, not good, but any legal grounds at all for upholding a transaction which is (^) every day entered into without question. When are we going to have third party beneficiary contracts?" 1° (^) (1937), 15 Can. Bar Rev. 371. (^11) Russell v. Scott (1936), 55 C .L.R. 440. (^12) (1949), 27 Can. Bar Rev. 344. (^13) [19481 W .N. 498, [19491 1 All E.R. 92, Ch. 278, L.J .'R. 529, 93 S.J.
(^14) (1949); 12 Mod. L. Rev. 380. (^11) (1949), 99 L.J. 552. 18(I949), 13 Conv. (N .S.) 226. (^17) Russell v. Scott, supra. (^11) Dr. C. A. Wright in (1937), 15 Can. Bar Rev. 371, at p. 373. 1s (^) Young v. Sealey, supra .' 2 ° A brief quotation from Dr. C. A. Wright's comment upon Russell v. Scott in (1937), 15 Can. Bar Rev. 371, at p. 375, puts both the testament- ary act and the intervivos gift arguments in a nutshell. It is also compelling in its advocacy of the latter. "It may sound plausible to say that as the donor retained the beneficial (^) interest in the `money' until her death, a disposal of this beneficial interest after her death must be made by a will. On the other hand if the subject of the gift is regarded as the chose in ac-
1955] Case and. Comment (^349)
increase, and the duty payable is this figure which does not in- crease. Using symbols :
The original gift is (^)........... ............. G Duty upon G........ ..................... D(1) First recalculated gift..................... G plus D(1) First recalculated duty.................... D(2) Second recalculated gift................... G plus D(2) Second recalculated duty.............. ..... D(3) Third recalculated gift.................... G plus D(3) Third recalculated duty (^).......... .......... D(4), and so -on.
At some stage, 'say D(n), it would be found that the duty did not. increase any further, no matter how many more recalculations were made. The duty then would be this figure D(n). The same re- sult would be reached more quickly by calculating the amount subject to duty which, less the duty, would equal the duty-free gift. Thus, if the amount be A and the duty upon A be D, and A less D equals G, the duty-free gift, then the duty to be collected upon the duty-free gift G would be D. Potter J., however, decided that the process should stop after one recalculation. The duty upon the legacy is to be calculated and added to the legacy. Upon that total a new duty is to be calculated, which is to be the duty payable in respect of the legacy. In the in- stant case the duty required under the minister's method, added to the legacy, exceeded the total estate. The minister theKefore con- sidered the whole estate as a succession to the wife, who would thus have received $616,076 .72, some $40,000 .00 less than the amount the testator had specifically left to her duty free. The method selected by Potter J. gave a duty of $327,815 .93 on the
legacy of $655,363 .51 to the wife, which, added to the legacy to
her and to the other gifts ($3,000 .00), left a residue of $9,490.58. Without going into the legal niceties of the problem, the arith- metical process has some interesting aspects, which are illustrated by the following examples
Example 1 :
Suppose an estate of aggregate net value $940,000 and that T, the testator, is interested in leaving his wife the maximum sum after duty that he can arrange. (a) If T leaves everything to his wife the duty payable will be as follows :
350 THE CANADIAN BAR REVIEW (^) [VOL. XXXIII
Aggregate net value : $940,000. Initial rate (^) 12 .7%
Wife : Exempt (Section 7(i)(a) $ 20, Dutiable (^) $920,000 Additional rate 25 .4%
Duty on $920,000-$350,
Total rate 38 .1%
(b) If, however, T leaves to his wife a duty free gift of $630,000, the duty payable will be calculated, on the method approv- ed in Hospital for Sick Children v. Minister of National Revenue, as follows :
Aggregate net value: $940,000. Initial rate 12 .7%
Exempt $ 20, Dutiable $827,770 Additional rate 24 .6%
Duty on $827,770-$308,
Total rate 37 .3%
and this is the duty payable, which, added to the legacy of $630,000, gives $93$,758, which, for practical purposes, exhausts the estate.
Example 2 :
Suppose two men, X and Y, die each leaving an estate of $940,000 and that X leaves to his wife a sum subject to duty which, on deduction of duty, will leave her $550,000 duty paid, whereas Y leaves his wife $550,000 free of duty. In each case suppose that the residue is left to a child over eighteen years of age. (a) Calculation shows that if X leaves to his wife the sum of $868,000 liable to duty then the duty will be as follows:
Aggregate net value: $940,000. Initial rate Wife : Legacy $868,
Exempt $ 20, Dutiable $848,000 Additional rate 24. 8 %
Total rate 37 .5%
Wife : Legacy $630, Exetnpt $ 20, Dutiable $610,000 Additional rate 23 .0%
Total rate 35 .7% Duty on $610,000 - $217,.
Recalculation : Wife : Legacy $630,000 +Duty $217,770=$847,770 Initial rate 12 .7%
35 2^ THE CANADIAN BAR REVIEW [VOL. XXXIII
Here it may be noted that the gift to the child might also have
been duty free in the sum of approximately $97,200, the duty
on which would be $31,775, totalling $128,975, so that a further
$3,000 of succession duty might be saved.
Recapitulating these examples, it appears that :
(1) On an estate of $940,000 a tax free gift to the wife of
$630,000 will attract duty of 308,758, which for practical purposes
exhausts the estate, while a disposition wholly to the wife attracts
duty of $350,520 and she gets some $42,000 less.
(2) On an estate of $940,000 a legacy to the wife subject to duty
of $868,000 will net the wife $550,000 and leave a residue of $72,000.
A duty free legacy of $550,000 will attract duty of $260,964 and
leave a residue of $129,036, which is some $57,000 more.
These results indicate a mathematical unsoundness in Potter
J.'s decision. The minister's contention is equivalent to saying
that the beneficiary of a duty free gift has actually received that
gross amount which, less theliuty, would equal the specified duty
free gift : and this seems basically reasonable and mathematically
sound. Correction to the decision may be forthcoming by statute.
In the meantime, however, perhaps some revision of the Wills
Book might be worth while.
J. B. WATSON *
ADMINISTRATIVE LAW-DISCOVERY-WHETHER MINISTER OF NA-
TIONAL REVENUE CAN REFUSE TO PRODUCE INCOME TAX RETURNS -
CONCLUSIVENESS OF MINISTER'S STATEMENT THAT PRODUCTION
WOULD BE PREJUDICIAL TO TIDE PUBLIC INTEREST.-The important
decision of the Supreme Court of Canada in Re Constitutional
Questions Determination Act (B.C .) : Regina v. Snider' is likely to
confine within narrower limits than hitherto the power of govern-
ment departments in Canada to refuse, on the ground of prejudice
to the public interest, to allow documents filed with them to be put
in evidence in legal proceedings. Although the point actually de-
cided was relatively narrow-the Minister of National Revenue's
claim of a common-law privilege to refuse, on this ground, to pro-
duce any income tax return or statement being held inapplicable
*John B. Watson, M .A .,^ LL.B .,^ of Campbell,^ Meredith^ &^ Murray, Vancouver, B .C. 1[19541 (^) S .C .R. 479 ; [1954] 4 D .L .R. 483. The decision of the British Columbia Court of Appeal in this case, [1953] 2 D .L .R. 9, was comment- ed on by F. E. LaBrie at (1953), 31 Can. Bar Rev. 927.
1955] (^) Case and Comment 353
to criminal proceedings-the reasons given by most of the mem-
bers of the court suggest that the principles laid down by the,
House of Lords in the well-known case of Duncan (^) v. Cammell, Laird & Co.' can no longer be relied on in .Canada. They also suggest that the line of recent cases,' which establishes the minis-
ter's right to refuse production of income tax returns in civil cases
by merely stating that in his opinion their production would be
prejudicial to the public interest, has been overruled. Indeed
Kellock J., with whom Kerwin, Taschereau and Fauteux JJ. con-
curred, specifically disagreed with Weber v. Pawlik, the British
Columbia representative in that line. In the Duncan case a government department objected to the production (a) in civil proceedings between the builder of a sub- marine and his sub-contractor of (b) the plans of the submarine and (o) gave no ground for (^) its statement that their disclosure would be prejudicial to the public interest-but it is quite obvious to anyone that such disclosure might give away important defence
secrets. In the present case the federal Department of National Revenue objected to the production under subpoena issued by a provincial attorney-general (a) in a criminal prosecution for con- spiracy to keep a common betting house, (b) of the accuseds' in-
come tax returns and statements (c) on the ground that their pro-
duction would violate a tacit understanding between all taxpayers and the department that they will be kept secret and would in this way prejudice the public interest. On .their facts the cases are, of course, miles apart, but in the Duncan case Lord Simon, in deliver-
ing the unanimous judgment of the House of Lords upholding the
department's objection, and after reviewing all the cases, laid down the following wide principles
- "The principle to be applied in every case is that documents otherwise relevant and liable to production must not be produced
if the public interest requires that they should be withheld. This
test may be found to be satisfied -either (a) by having regard to the contents of the particular document or (b) by thefact that the document belongs to a class which, on grounds of public interest, must as a class be withheldfrom production." 4
- An' objection taken to production on the ground that this
2 [19421 A.C. 624.
3 Re Geldart's Dairies, Limited (1949), 30 C .B .R. 120 (New Brunswick) ; M. N. R. v. Die-Plast Co. Ltd., [1952] 2 D .L.R. 808 (Quebec) ; Weber v. Pawlik, [1952] 2 D .L .R. 750, (British Columbia) ; and Clemens v. Crown Trust Co., [1952] 3 D .L .R. 508 (Ontario). 4 [1942] A.C. at p. 636.
