Mitchell v Hart [1914] HCA 72

Mitchell v Hart [1914] HCA 72

Where new shares are offered to shareholders, paid for by a contemporaneous bonus out of accumulated profits, and the shareholders are left with a full and free option to accept or refuse the shares without practical compulsion, as between tenant for life and remaindermen, the bonus applied in payment is income, not capital. The new shares are capital, but the tenant for life is entitled to a charge for the amount of the bonus applied.

Parties
Appellant: Isabel Sutherland Mitchell; Respondents: Edith Maria Hart and others; Trustees: Permanent Trustee Co. Ltd. and James Kidd
Jurisdiction
Australia
Judgment Date
26 November 1914
Procedural Posture
Appeal / Judgment on Appeal From Supreme Court of New South Wales
Outcome
appeal dismissed
Legal Topics
Distribution of Company Profits, Division Between Capital and Income, Tenant for Life and Remainderman, Bonus Issue of Shares, Trustee Powers
Trusts Company Law Equity Distribution of Company Profits Division Between Capital and Income Tenant for Life and Remainderman Bonus Issue of Shares Trustee Powers

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Parties

Isabel Sutherland Mitchell

Appellant

Edith Maria Hart and others

Respondents

Permanent Trustee Co. Ltd. and James Kidd

Trustees

Procedural Posture

Appeal / Judgment on Appeal From Supreme Court of New South Wales

Legal Issues

  1. 1 Whether new shares paid for by bonus declared out of company profits and allotted to trustees are capital or income as between tenant for life and remaindermen
  2. 2 Whether tenant for life is entitled to a charge on such shares for the amount of the bonus

Ratio Decidendi

Where new shares are offered to shareholders, paid for by a contemporaneous bonus out of accumulated profits, and the shareholders are left with a full and free option to accept or refuse the shares without practical compulsion, as between tenant for life and remaindermen, the bonus applied in payment is income, not capital. The new shares are capital, but the tenant for life is entitled to a charge for the amount of the bonus applied.

Court Disposition

appeal dismissed

Orders

  • Order of Harvey J. (Supreme Court of New South Wales) affirmed
  • 1,555 and 1,400 new shares form part of capital of the estate