LORD EVERSHED M. R. stated the facts and continued : The question raised by the summons and argued upon this appeal is a question of the effect upon the deed of February 19, 1930, of what is now section 486 of the Income Tax Act, 1952 (formerly section 25 of the Finance Act, 1941). [His Lordship read sub-section (1) of section 486, and continued :] The definition of 'appropriate fraction' is to be found in subsection (5). It is conceded that 'the appropriate fraction' in this case (if the section is applicable) is 23/29 thus. It is also conceded, that if the section is applicable, the 'stated amount' referred to is not the sum total of the obligations under the deed of appointment but what may be called the 'making up' figure contained in clause B.
At first slight. It would seem (with all respect) that the question is not a difficult one; for by the deed 'provision' was 'made' for the payment of a 'stated amount' free of income tax, that provision being contained in a deed made before September 3, 1938 (which hereafter, for brevity, I will call 'the war date'), and not afterwards varied. But it has been argued in this court, and in the court below (and before Danckwerts J. the argument succeeded), that, upon more accurate use of language, it is not nature to say, in the circumstances of this case, that provision for payment of the sum in question was made before the war date.
In the court below, the conclusion in favour of the defendant was Which Danckwerts J. thought bound him to hold as he did. In this court, the argument for the defendant by Mr. Charles Russell has, I think, been put on a somewhat different ground. But it will be convenient for me to turn first to Berkeley v. Berkeley. It was a case (Stating the facts quite briefly) in which, as a result of a will made before the war date by a testator who died afterwards, certain provision for payment of annual sums in favour of his wife were made; and the questions as whether it could be said that the appointment in favour of his wife contained in the testators will made - that is, executed - before the war date, though the testator survived that date, constituted a provision made before that date within the meaning of the section (then section 25 of the Act of 1941).
The House of Lords answered that question negatively. As I read the speeches of the noble Lords, the ground upon which they founded their conclusion was, briefly, this : that a will in no sense in effective until the testators death : until that date the will is liable at any item to be wholly revoked : it is a mere expression of intention at the time that it is made. Though a man might, no doubt, say in ordinary conversation during his life that he had 'made provison' for his wife by his will, that in truth is not an accurate use of words : they only mean. More strictly construed, that he has executed a will which, if unrevoked will make provision for his wife on his death.
That view is also supported (as the noble Lords pointed out) by the presumed intention in the legislature -namely. To remedy an injustice caused by the effect of war time increases in taxation to heights undreamed of in pre-war philosophy. There is, indeed, no doubt that the effect of the high rate of taxation is to impose a very great burden, or is liable to impose a very great burden, on estates which are under obligation to pay tax-free amounts of income. Nevertheless (as was pointed out in the House of Lords), one still living was always able, when new taxation was brought to his attention - and, as Lord Simonds observed, he would not be likely not to notice it - to alter his will; and, if he did not do so, he should be presumed to have intended the consequence. On the other hand, if the donor had already bound himself irrevocably, then there was no means whereby he himself could remedy the situation, except, of course, by obtaining, with the consent, if it could be obtained, of the beneficiary, a variation of his obligation - a situation contemtplated, and dealt with expressly, by paragraph (c) in the first subsection of the Act.
I do not whiles to take too much time by multiplicity of citations; but I would like to make some references first to the speech of Lord Simonds. He said this : 'The question is whether for the purposes of this section provision is made by will for XAD an annual payment when the will is duly signed or when by the death of he postulates of every provision, however made, a common content, namely, that it has a legal effect before that date.' I take one last citation for that Speech XBCE : 'Until a testator is dead, the beneficiaries under his will have no better provision than have the next of kin from their still intestate ancestor. In my view the section must be read as dealing not with a spes successions nor with an expectation which rests upon a document liable at any moment to be torn up and having no force in the law, but with rights known to the law and enforceable by one man against another.'
Lord Uthwatt, after referring to the presumed legislative intention to which I have already made allusion, and this : 'One further general observation may be made. Testamentary instruments appear in subsection (1), in the middle of a list of other instrument all of which were in effective operation on September 3, 1939, and the section applies in the same way as respects the effect of the provision whatever be the character of the instrument in which the provision is contained. The general layout of the section as well as the substance of the matter suggests that the legislature was dealing with a closed series of transactions, involving therefore only the testamentary disposition, of testators who died before the war date.'
Finally, I go back to the leading speech of Viscount Simon, on which I think Danckwerts J. perhaps most particularly relied, since he made a citation from it immediately before the statement of his conclusion. Viscount Simon said (and this is the passage, or part of it, which Danckwerts J. cited) : 'There is a clear distinction drawn in the section between a provision contained in a document irrespective of date and a provision made before September 3, 1939. Language is very ineptly used if one speaks of making a a clause. It is not the instrument, but the provision, for which a lates date is prescribed. Moreover, all the other documents mentioned except a will or codicil are such as would confer a vested right to the payment of the annuity free of tax - a benefit which was created at a time when income tax a 10s. in the pound was in no ones thoughts.'
I will refer to another passage because I shall pick it up later : 'The will of a living testator, on the other hand, confers no right on anyone to any benefit therein mentioned. Even if it existed side by side with a covenant not to revoke, the covenantee has not rights under the will until the testator is dead.'
It will be noticed froms he passages I have read (and it may be taken that the same is applicable to the passages which I have not read) that there is in the speeches no expression of opinion at all on what the effect of the section would be in such a case as the present. It was pointed out By Mr. Russell that, if the matter was as simple as Mr. Pennycuick suggested, then one would perhaps have expected to find a statement of the simple contrast. But in truth it is, I think, clear that their Lordships adhered strictly. Form beginning to end, to the particular - the sole - point which was before the House for its determination.
Danckwerts J. took it that the effect of the speeches was to lay it down - not only in the case of a will but in all cases - that a 'provision made' meant, for the purposes of the section, a provision which had become effective in possession or enjoyment. As I indicated earlier, Mr. Russell did not go quite so far as that. His main argument was based on the contingencies in the relevant clauses of the appointment which I have read. I think Mr. Russell accepted the proposition that the word 'payment' in subsection (1) must include payments in the future as well s present payments; and in any case I am satisfied that that must be so. But further. Mr. Russell - without, I think, conceding the point - was prepared to accept arguendo that the case might be otherwise if, for example. A covenanted, at a pre-war date, to pay to B x pounds per annum free of tax for ten years from some postwar date. But (as he said) that was not this case : and he contended (and with some truth) that this was not a matter where one could find some neat, logical pattern to cover all cases. All that Mr. Russell was concerned with in this case (as he pointed out) was this : that here the only effect that the deed could be said to have had on its execution before the war date was that there was a covenant or obligation, subject to two contingencies, to pay future annual sums; the two contingencies being, first, the contingency that the marriage take effect in six months, and, secondly, that the defendant survive the appointor. Mr. Russell did refer to a third contingency, as to availability of the subject-matter; but that I do not take further time about.
I agree entirely so far with Mr. Russell that we are only concerned with this case. This, I express no view, on the one hand what would be the effect of the case intimated by Lord Simon, to which he did not give an answer, so far as relevant to this case - namely, the case where a man had executed a will containing a provision such as you find here and at the same time executed a covenant not to revoke it. Equally, I express no view about what the effect of the section would be where there was an appointment, somewhat in the same for as that in the present deed, but where the deed contained an unqualified power of revocation at any time during the appointors lifetime. I also express no view about what the situation would have been if the period of the marriage contingency had been extended to cover September 3, 1939, and the marriage had not in fact been solemnised on that date. The fact is, the present case, that on September 3, 1939 - on the war date - the marriage had been solemnised, and that on that date the covenantor had bound himself irrevocably, and charged his estates in support of his executors obligations, to the defendant to pay her a stated amount if she survived him - that is, from the date of his won death - for the rest of her life.
Applying the ordinary tests of language - according, that is, to its ordinary common - sense usage, which is, I apprehend, appropriate to an Act of Parliament, in the absence of something special - I think that a 'provision' had been 'made' before September 3, 1939, for payment of a 'stated amount.'
I accept the test which Mr. Pennycuick put in the court of his reply : The defendant is now in receipt of certain annual sums : and if the question be asked, by virtue of what right is she being paid the answer is, surely : the right which was created by the execution of the appointment before the war date.
It will be noticed that the other view would at any rate lead to very extraordinary anomalies. I take, as an example, the distinction (if Mr. Russells argument is right and if the concession that he made in argument be made) between these two cases - between, first, a right or receive x pounds contingent on the recipient attaining twenty one or surviving particular date; and Secondly, an absolute right to receive, from some future date, whether the beneficiary survives or not, a stated amount, or to receive such a stated amount subject to some prior interest. If the test is applied which was applied in Berkeley v. Berkeley - that of considering the purpose of the legislation - it is plain that there can be no distinction whatever between the two cases which I have suggested : in both cases an obligation has been entered into which would result in a liability which, regarded from this standpoint, could not have been intended, and from which there can be no escape - apart from voluntary variation or as a result of the legislation.
Similarly, Ormerod L.J., in the course of the argument, put the case of all will, not only made, but proved, before the war date, but containing a provision for some future tax - free payments. Once again it is plain that, if the evil which the legislature intended to remedy be looked at, that is a case where legislation is as much required as it would be in the straightforward case of an obligation, which had become effective in possession by the war date, to pay a stated sum in saw certain event.
I should add that reference was made in the course of the argument to Inland Revenue Commissioners v. Saunders. There was in that case some reference to Berkeley v. Berkeley; but in my judgment the references do not carry the matter any further.
I, therefore, for my part conclude, first, that there was nothing in the reasoning or the speeches in Berkeley v. Berkeley which binds this court to hold in favour of the defendant; and, secondly, that, the matter being treated, therefore, as res integra, the case falls clearly (as I think) within the terms of the section, construed according to the ordinary standards of language.
I would therefore, for those reasons, allow the appeal
ROMER L.J. I agree.
In Berkeley v. Berkeley the House of Lords held (in effect) that 'provision,' in relation to section 486(1)(b) of the Act of 1952, means the beneficial interests created by an instrument and not the instrument itself or a clause thereof. That being so, it appears to me that in the present case two questions arise : (1) what beneficial interest, if any, was created in the defendants favour by the deed of 1930 and (2) was such interest one within the scope of the section
Now as to the first question, the interest which had been created by the covenant in favour of the defendant was the right, on a future contingency, to receive a tax-free annuity out of the covenantors estate. There is no doubt but that, at the relevant date, namely, September 3, 1939, there was an irrevocable future obligation on the covenantors legal personal representatives to pay the annuity out of the assets of the estate if the contingency occurred, namely, if the covenantor died leaving the defendant surviving; and a corresponding right was vested in the defendant to receive it. There was no power reserved by the covenantor under which the defendant could be deprived of the right to receive the annuity if she survived her husband, and no power to release the covenantors estate from the liability to pay it. It follows, therefore, that a beneficial interest was conferred on the defendant by the deed.
The second question that arises is whether that interest is not to which the modifying provisions of these section apply. If the section were confined to a right created before the relevant date to receive immediate payment of a tax-free annuity, then the defendants contingent right to her future annuity would remain unaffected. In other words, a question posed by Mr. Russell during the course of the argument would require a negative answer. That question was (as Mr. Russell put it) : in this case, has there been provided before September 3, 1939, a tax-free annuity for the defendant Mr. Russell said the answer must be 'No', and that only the convenantors legal personal representatives were or might become under an obligation to provide it. It seems to me that that was a somewhat formidable way of putting Mr. Russells case; but I think the true answer to it is this : that the section is not, in is terms, confined to annuities immediately payable, and I can see no warrant for reading in a qualification which would in great measure whittle down -and for no intelligible reason - the effect of the section. Nor can I see anything in the speeches in Berkeley v. Berkeley to suggest that the section is only concerned with annuities immediately payable, so that it excluded annuities payable upon future contingencies. On the contrary, all their Lordships seem to have recognised that a right to a tax-free annutiy, whether at law or in equity, which has been created before September 3, 1939, was within the section, so long as it really was a right; and none of them suggested that the annuity must be presently payable.
On September 3, 1939, the defendants position was that the interest which she then had under the deed a was a continuity legal right to future annuity which would ripen into a right to present payment if she survived her husband; and I agree with Mr. Pennycuick that the relevant date to consider is the date when this contingent right to receive the annuity was conferred and not the date when the annuity should become presently payable, if it became payable at all.
In conclusion, I would say that it is quite clear to me that the judge himself would have given effect to this view has he not though him self precluded from so doing by the speeches in Berkeley v. Berkeley. For my part, I am satisfied that the speeches do no have that result; and I accordingly agree that this appeal must be allowed.
ORMEROD, L.J. I agree; and although we are differing from the judge there is nothing that I wish to add to the reasons which have been given by my Lords.
Leave to appeal to the House of Lords.