[1942] EACA 12

#### ORIGINAL CIVIL

#### BEFORE SIR JOSEPH SHERIDAN, C. J.

#### In the matter of the Trusts of the Will of RICHARD USSHER, Deceased

$and$

## In the matter of an application for Interpretation of Clauses 3 and 6 of the Will of the said RICHARD USSHER, deceased

#### between

## THE PUBLIC TRUSTEE OF THE COLONY AND PROTECTORATE OF KENYA, as Executor and Trustee of the Will of the said RICHARD USSHER, deceased, Plaintiff

# ν. 1. MRS. SELINA USSHER and 2. NEVILLE ARLAND USSHER, Defendants

## Civil Case No. 84 of 1942, O. S.

Wills—Construction—Bequest—Life annuity free of all duties and without deduction of income tax—United Kingdom, Kenya and Irish Free State income tax—Aggregation of annuity with income of annuitant to determine rate of tax—Appropriation of investments to answer annuity.

The testator a resident in Kenya died in the Colony in 1933 and in his will he claimed Kenya as his domicile. His will directed his trustee (The Public Trustee) to pay an annuity of £1,000 per annum free of all duties and without deduction of income tax to his mother who had lived in England all her life up to June, 1941, when, owing to the war, she took up the residence in the Irish Free State. At the time of the execution of the will no income tax was in force in Kenya but such tax had been in force some years previously and it was averred that the testator at the time he executed the will knew that there was a proposal to re-introduce such tax and the tax was re-introduced. The greater part of the corpus producing the annuity consisted of Kenya first mortgage. The will also directed the trustee to appropriate in respect of the annuity investments and securities sufficient at the date of the appropriation to answer the annuity out of income the capital of the investments so appropriated to form a secondary fund for answering the annuity. The will provided other trusts for the widow and children. The income from the estate was insufficient to pay the annuity and capital assets were drawn upon for that purpose. The Public Trustee submitted the following three questions for determination by the Court:

1. Whether by the use of the words "free of all duties and without deduction of Income Tax" in Clause 3 of the will of the said deceased, the testator intended the annuity given by his will to the first defendant, to be given to her free of United Kingdom Income Tax and/or Kenya Income Tax and/or Irish Free State Income Tax in the circumstances which have arisen.

2. Whether for the purpose of determining the rate of income tax payable by the trustee (if any is payable) the said annuity is to be aggregated with other income of the first defendant, or is to be treated as enjoyed by the said defendant independently of income of hers derived from any other source.

3. Whether the plaintiff is now justified in making an appropriation of a fund out of the capital assets of the deceased's estate as directed by him in Clause 6 of the said will to take effect from the commencement of the trust. and if so, what amount should be appropriated to meet the annuity of £1,000 per annum given by the said will.

Held (6-7-42).—(1) That the residuary estate was liable for United Kingdom and/or Kenya income tax.

(2) That as regards Irish Free State income tax the question was whether the testator had in mind freedom from any and every income tax and not merely United Kingdom and Kenva income tax and there were no grounds for holding that he had.

(3) That for the purpose of determining the rate of income tax payable by the trustee the annuity was to be treated as enjoyed independently of any other income.

(4) That as were appropriation to be effected it would be impossible to carry out the trusts of the will the trustee would not be justified in making an appropriation.

Cases cited: In re Frazer, Frazer, v. Hughes (1941) 2 A. E. R. 155; In re Norbury,<br>Norbury v. Fahland (1939) 2 A. E. R. 625; In re Quirk, Public Trustee v. Quirk (1941)<br>1 Ch. 46; In re Scott, Scott v. Scott (1915) 1 Ch. 592.

Archer for Public Trustee and 2nd defendant.

## Figgis. K. C. for 1st defendant.

JUDGMENT (after reciting the title of the suit and the three questions set out above, the judgment continued): $-$

The answer to the first question presents some difficulty. I will shortly state the facts in so far as they are material. The testator, an Englishman who was resident in Kenya at the time of his death on the 5th July, 1933, three days before his death made a will in which he described himself as domiciled in Kenya where he had resided for many years. Under the will he made provision for his mother the first defendant in the following words, "I bequeath to my mother Selina Ussher of 11, Wyndham Place, London, S. W.1 an annuity of One thousand pounds per annum during her life to be paid free of all duties and without deduction of income tax" (Clause 3). His mother an Englishwoman had been living in England all her life and at the time the will was made it is clear that the possibility of her changing her residence to another country was not contemplated by the testator. Due to circumstances, war conditions which were not and could not have been foreseen by the testator, she took up her residence in Donegal, the Irish Free State, in the month of June, 1941. Inter alia the question arises whether she as legatee or the residuary estate should be responsible for the payment of the Irish Free State income tax. But before considering that question I have to decide whether she or the estate are liable (1) for United Kingdom income tax and/or (2) for Kenya income tax. On the facts I have no doubt that the Estate is responsible for the payment of both. At the time of the execution of the will the only income tax affecting the annuity was United Kingdom income tax and that is a tax which the testator must have had in mind when he made his will. With regard to Kenya income tax, although an income tax was not in force at the time, such a tax had been in force some years previously and paragraph 10 in the supporting affidavit suggests that such a tax might be re-introduced in the future and this has actually happened. When one considers this together with the fact that the greater part of the corpus producing the annuity consists of a Kénya first mortgage and the other circumstances it seems reasonable to say that the testator's intention was that his mother should receive the annuity free of Kenya income tax. I find therefore that the obligation to pay United Kingdom tax and/or Kenya tax under the provisions of the will falls on the residuary estate. In actual fact I believe that under the reciprocal arrangements existing between the United Kingdom and Kenya no question of the payment of double tax would arise. I pass then to what is the crux of the case, the question as to whether the position is affected by the change of residence to the Irish Free State. Mr. Figgis has submitted that the words "free of all duties and without deduction

of income tax" are sufficiently wide to support the contention that the testator's intention must have been that his mother was not to be liable for any income tax wherever and by whatever law imposed. This would mean of course that the legatee was entitled to take up her residence in any part of the world and should there be in force an income tax in the country of her choice the estate and not she would have to pay it. This very question arose for decision in re Frazer, Frazer $v$ . Hughes (1941) 2 A. E. R. 155 the headnote to which reads:

"A testator who died in 1916 domiciled in England, directed his trustees to pay his widow out of his residuary estate such a sum as would, together with the income from his marriage settlement, amount to £2,000 per annum 'free of all taxes (including income tax) and duties'. In 1932, the widow took up residence in Kenya, where the income she received from the trustees became subject to Kenya income tax. She contended that the trustees should pay the amount of this tax out of the estate: $\dot{-}$

Held.—The testator did not contemplate that his widow would live abroad, and, therefore, the phrase 'free of all taxes (including income tax) and duties' could refer only to such taxes and duties as were payable in England. and did not include Kenya income tax".

The case to my mind is a strong one in favour of Mr. Archer who appeared forthe trustee and the residuary legatee. Farwell, J. found the case difficult. At page 159 he said: $-$

"When the testator made his will, it is difficult to suppose that he was contemplating the possibility of his widow taking up her residence in some country other than England, and thereby incurring liability to some tax imposed by a foreign country not foreseen in any way by the testator. Still, I have to deal with what is a very wide term, because the testator's widow is to be relieved, so far as the income is concerned, of all taxes, including income tax and duties. Am I properly entitled to limit 'all' taxes' to taxes imposed by the laws of England, or am I to read the words 'all taxes' as meaning taxes imposed anywhere by any law in any country other than England? I feel a difficulty. I think that the term 'all taxes' is very wide, and *prima facie* certainly would include the tax imposed in respect of the income. wherever imposed, by any country in which the testator's widow happened to be living. However, that is not the conclusion to which I think I ought to come. I think that I should adopt the reasoning of Bennett, J. in Norbury's case, although I am not suggesting that his decision covers this case, or is itself a decision which I am in any way bound to follow. I think that, when the testator gave his widow an income and directed that the amount of it should be calculated free of payment of all taxes, including income tax and duties, he was contemplating only such taxes and duties as were properly payable from time to time under the laws of England, and he did not contemplate or intend including in the language which he used any duty which might have been imposed or to which his widow might have become liable by reason of her change of residence after his death".

Norbury's case is reported in (1939) 2 A. E. R. 625 and at page 626 Bennett, J. said: $-$

"An English testator is to be presumed to know something of the duties imposed by the English law both on his estate and on beneficiaries under his will when he dies, but I do not suppose that many of them know much, if anything, about death duties imposed by the laws of foreign countries. Nor do I suppose that many of them would contemplate some additional burden being imposed on their estates by a change of residence on the part of a person to whom a legacy had been given. Since there appears to be no authority, I hold that, where an English testator by an English will gives a pecuniary legacy 'free of duty', the only duties payable out of his estate in respect of the legacy are duties imposed by English law unless there are words in the will making it clear that duties imposed by the law of a foreign country are to be paid out of such estate".

The case of *In re Quirk Public Trustee v. Quirk* (1941) 1 Ch. 46 was also referred to. Morton, J. in distinguishing that case from Norbury's case said at pages 50 and 51 "If I had been dealing with a case of pecuniary legacy given by an English testator in an English will I should have applied the rule there laid down by Bennett, J., with which I respectfully agree, but I am dealing with the case of a devise of immovable property in a foreign country". So that, as I understand the judgments in Norbury's case, Quirk's case and Frazer's case all three Judges. Bennett, J., Morton, J., and Farwell, J., are agreed that the words "free of duty" or "free of income tax" are restricted to English duties or English income tax where there is no context to extend the meaning of those words. There is a passage in the judgment of Phillimore, L. J. in *In re Scott, Scott v. Scott* (1915) 1 Ch. D. 592 at page 609 which assists me in reaching the conclusion that the words in Clause 3 of the will cannot be given an extended meaning; the passage reads: "What the testator intended or what he would have done if he had had the point present to his mind, I cannot guess; I may have my suspicions or my conjectures, but it is not for me to guess, and it is safer to rest upon general law in these matters". To my mind it does not affect the question that the income tax payable in the Irish Free State may be less than the United Kingdom tax contemplated by the testator. I mention this because Mr. Figgis argued that no additional burden would be cast on the estate by reason of the change of residence. The question is whether the testator had in mind freedom from any and every income tax and not merely United Kingdom and Kenya income tax, and as to that as I have said, there are no grounds for thinking that he had. It is, however, interesting to note in "Income Taxes in the British Dominions" (2nd Ed.) page 372 issued by the Inland Revenue Department, London, in 1928 the following passage:-

"There is no provision for granting relief from Free State income tax" in respect of income tax paid or payable in any British dominion, colony, protectorate, etc.

The Free State government is empowered to enter into a provisional arrangement with the government of any foreign state for granting relief in cases where there is a charge both to Free State income tax and to income tax in that foreign state, in respect of profits from the business of shipping carried on by an owner or charterer of ships.

(Up to the present no such arrangement has been concluded)".

I have no information that any such provisional arrangement has been effected with Kenya, nor would it seem that any such arrangement would have any application to the facts of this case so that it would seem that one result of the change of residence to the Irish Free State is that income tax is payable both in Kenya and the Irish Free State, but that fact must not be taken as the ratio *decidendi* in the present case.

The second question presents no difficulty. It was not really in issue but a declaratory order is sought. I hold that the annuity is to be treated as enjoyed independently of any other income.

The third question may also be disposed of shortly. Were appropriation to be effected it would be impossible to carry out the trusts of the will. The answer therefore is that the plaintiff would not be justified in making an appropriation.

The costs of the parties will come out of the estate, and be costs as between solicitor and client. Should an appeal be contemplated and leave therefore be necessary I grant such leave.