17 D.L.R. (3d) 199, (sub nom. Hill v. Yorkshire & Canadian Trust Ltd.), [1971] 2 W.W.R. 121

Reid, Re

Hill (Appellant) v. Yorkshire & Canadian Trust Limited (Respondent)

British Columbia Court of Appeal

McFarlane, Branca and Robertson JJ.A.

Judgment: December 9, 1970

COUNSEL:  W. Esson, for appellant.

C. C. Locke, Q.C., for respondent.

SUBJECT:  Estates and Trusts

Trusts and Trustees — Compensation to trustees -- Indemnification.

Trusts and trustees -- Trustee paying estate duty under compulsion of law -- Right to indemnity.

Respondent was an English company which also did business in British Columbia; it was the trustee for a testatrix who died domiciled in England leaving property there and in British Columbia. United Kingdom estate duty was assessed in an amount which exceeded the value of the assets in England and the respondent was, by English law, accountable personally for the full amount of the duty. In response to a demand made upon it by the Estate Duty Office in England it paid the duty, as it was bound to do. An application by the cestui que trust to the British Columbia Court for an order that the respondent distribute the remainder of the estate without making any deduction from the assets in British Columbia in respect of the taxes claimed by the United Kingdom Government was dismissed.

It was held that the appeal must be dismissed; the authorities were clear that the respondent was entitled to be indemnified out of the estate and any part thereof against the estate duties it had had to pay unless the appellant could show some good reason why his trustee should bear them: Hardoon v. Belilios, [1901] A.C. 118 applied.

This was not a case to which the principle enunciated in United States of America v. Harden, [1963] S.C.R. 366, 44 W.W.R. 630, 41 D.L.R. (2d) 721, affirming (1962), 40 W.W.R. 428, 36 D.L.R. (2d) 602, applied since it could not be shown that a foreign government was seeking to enforce through the courts of this province taxes due to it. The appellant had failed to show any good reason why his trustee should pay the taxes in question and his appeal must be dismissed.

The judgment of the Court was delivered by Robertson J.A.:

1 This appeal is against the dismissal of a motion:

THAT the Yorkshire & Canadian Trust Limited, the Trustee herein, do forthwith distribute the rest and residue of the Estate of the said Dame Georgina Reid, deceased, in accordance with the terms of the Will of the said deceased, without making any deduction from the assets situate in British Columbia in respect of estate taxes claimed by the United Kingdom National Revenue Department.

2 Dame Georgina (“the testatrix”) died in December 1919, domiciled in England and leaving property in both the United Kingdom and British Columbia. By her will the testatrix appointed executors, made some specific devises, and bequeathed the income of the rest of her estate in equal shares between her two daughters and the survivor of them for life, with remainder in equal shares to her two grandsons, who were the sons of one of the testatrix’s daughters and of whom one is the appellant. In England, letters probate of the will were granted to one of the executors, Bourke, and those letters probate were resealed in the Supreme Court of British Columbia in November 1920. Later Bourke, by deed, appointed the respondent and one Roberts to be trustees of the testatrix’s will in his stead. In May 1925 one Bushnell was appointed in the place of Roberts. By an order made in the Supreme Court of British Columbia in October 1941 the appointment of the respondent and Bushnell as trustees of the will was confirmed. At some unstated date the respondent assumed sole administration of the estate. In 1940 one of the two life tenants died. In 1963 one of the two remaindermen died, naming the appellant his sole executor and trustee. In 1964 the surviving life tenant died. The appellant then became entitled to one half of the testatrix’s estate in his own right and to the other half in his capacity as executor of his brother.

3 Following the death of the last surviving tenant for life, the revenue authorities in the United Kingdom claimed estate duty under the Finance Act, 1894 (Imp.), c. 30, in a sum in excess of $10,000. This put the respondent in a difficult position. It was incorporated in England and did business and had assets both there and in British Columbia. Under the Finance Act, 1894, it was accountable for the estate duty in respect of all personal property wheresoever situate of which the testatrix was competent to dispose at her death. The value of the assets in the United Kingdom was only some $3,000, while the value of the assets in British Columbia was in excess of $60,000. The appellant took the position that, if the respondent paid the estate duty in the United Kingdom, it would be entitled to recoup itself only to the extent of the assets there and could not be indemnified to the extent of the difference out of the assets in British Columbia.

4 From time to time the appellant made demands on the respondent that it distribute all the assets in British Columbia to him. Because of the difficulty mentioned, the respondent would not do this. In September 1968 the appellant commenced these proceedings. In November 1968 the order appealed against was made. The appellant appealed and this appeal first came on for hearing in May 1969; but, after the appellant’s argument had proceeded for a time, the appeal was adjourned so that further information might be got. The information was collected and further, in June and July 1970, the respondent paid the duties in the amount of £3,897.16.0d. Hearing of the appeal resumed on 25th November 1970.

5 The respondent takes the position that it is entitled to be indemnified in respect of the estate duty that it has paid out of the assets of the estate wherever situate and it relies on the principles stated in Hardoon v. Belilios, [1901] A.C. 118. There the plaintiff was the registered holder of partly-paid shares that he held in trust for the defendant as beneficial owner; calls were made on the shares; the question raised by the appeal was whether the plaintiff was entitled to be indemnified by the defendant against the calls. Lord Lindley delivered the judgment of the Judicial Committee and he said at p. 123:

The next step is to consider on what principle an absolute beneficial owner of trust property can throw upon his trustee the burdens incidental to its ownership. The plainest principles of justice require that the cestui que trust who gets all the benefit of the property should bear its burden unless he can shew some good reason why his trustee should bear them himself. The obligation is equitable and not legal, and the legal decisions negativing it, unless there is some contract or custom imposing the obligation, are wholly irrelevant and beside the mark. Even where trust property is settled on tenants for life and children, the right of their trustee to be indemnified out of the whole trust estate against any liabilities arising out of any part of it is clear and indisputable; although, if that which was once one large trust estate has been converted by the trustees into several smaller distinct trust estates, the liabilities incidental to one of them cannot be thrown on the beneficial owners of the others. This was decided in Fraser v. Murdoch (1881), 6 App. Cas. 855, which was referred to in argument. But where the only cestui que trust is a person sui juris, the right of the trustee to indemnity by him against liabilities incurred by the trustee by his retention of the trust property has never been limited to the trust property; it extends further, and imposes upon the cestui que trust a personal obligation enforceable in equity to indemnify his trustee. This is no new principle, but is as old as trusts themselves.

6 Then Lord Lindley said at p. 125:

When a trustee seeks indemnity from his cestui que trust against liabilities arising from the mere fact of ownership, there is neither principle nor authority for saying that the trustee need prove any request from his cestui que trust to incur such liability. In the case supposed the trust involves such liabilities, and the trustee, whilst he remains such, cannot get rid of them.

He is subject to them as legal owner; but in equity they fall on the equitable owner unless there are good reasons why they should not.

7 Finally he said at p. 127:

It is quite unnecessary to consider in this case the difficulties which would arise if these shares were held by the plaintiff on trust for tenants for life, or for infants, or upon special trusts limiting the right to indemnity. In those cases there is no beneficiary who can be justly expected or required personally to indemnify the trustee against the whole of the burdens incident to his legal ownership; and the trustee accepts the trust knowing that under such circumstances and in the absence of special contract his right to indemnity cannot extend beyond the trust estate, i.e., beyond the respective interests of his cestuis que trustent.

8 From this authority it is clear that the respondent is entitled to be indemnified out of the estate and any part thereof against the estate duties it has had to pay unless the appellant “can shew some good reason why his trustee should bear them himself”.

9 The respondent refers also to s. 97 of The Trustee Act, R.S.B.C. 1960, c. 390, which reads in part:

97. A trustee, without prejudice to the provisions of the instrument (if any) creating the trust, … may reimburse himself, or pay or discharge out of the trust premises, all expenses incurred in or about the execution of his trusts or powers.

10 The appellant advances as a good reason why the respondent itself should bear the estate duties (or, rather, so much of them as cannot be met out of the assets in the United Kingdom) that which is referred to in United States of America v. Harden, [1963] S.C.R. 366 at 369, 44 W.W.R. 630, 41 D.L.R. (2d) 721, as the well-established rule “that a foreign State is precluded from suing in this country for taxes due under the law of the foreign State”, at p. 370 as “the proposition ‘that in no circumstances will the courts directly or indirectly enforce the revenue laws of another country’,” and at p. 371 as “the special principle that foreign States cannot directly or indirectly enforce their tax claims here”. At p. 371 Cartwright J. (as he then was), who delivered the judgment of the Court, spoke of “this rule, which is one of public policy”. In the judgment of this Court (1962), 40 W.W.R. 428, 36 D.L.R. (2d) 602, against which the appeal to the Supreme Court of Canada was taken, Sheppard J.A. said at p. 430:

Also, the courts will not entertain an action brought by an individual which will indirectly have the effect of enforcing the revenue laws of a foreign country.

11 It will be useful, before I examine the authorities cited by counsel for the appellant, to discuss the circumstances here. The respondent is an English company, having been incorporated in England under the Companies (Consolidation) Act, 1908 (Imp.), c. 69, and so is amenable to all the laws of England applicable to such a company. It became a trustee of the estate of the testatrix, with the duty of administering that estate in accordance with her will. (It might be reasonable to infer that it was because the respondent did business in both England and British Columbia that it was chosen to be the trustee.) Upon the death of the last surviving tenant for life, estate duty became payable in England under the Finance Act, 1894. Under s. 8 of that Act the respondent was accountable for the estate duty. It was a matter of no concern to the Estate Duty Office where the respondent found the money to pay the duty. If the respondent did not pay, the Office could get judgment against it in England and, if necessary, cause it to be wound up. The Office made its position clear in a letter from its Solicitor’s Office dated 22nd October 1968:

I am instructed by the Board to inform you that, whether or not the Canadian Court should refuse to allow your client, The Yorkshire and Canadian Trust Limited, to indemnify itself from the Canadian assets, the Board would seek to enforce the personal liability of the company as trustee under Section 8(4) Finance Act 1894.

12 The Estate Duty Office was not seeking to lay its hands on any property in British Columbia or otherwise to enforce its tax claims here. Acting in accordance with the Finance Act, 1894, it was seeking to gain from an English company the payment of duty for which the Act provided that the company should be accountable. At the time when these proceedings were commenced the respondent was in a position where it would soon be compelled to pay; since then it has -- reasonably, in my opinion -- paid. The fact that it has paid makes no difference to the decision of this appeal.

13 I turn now to an examination of the authorities. This is not a case like United States of America v. Harden, supra, where the government of the United States, having obtained a judgment there for taxes, sued upon that judgment in a British Columbian court; it was held that the claim upon the judgment remained a claim for taxes, and so the action failed. Nor is this case like Peter Buchanan Ltd. and Macharg v. McVey, [1955] A.C. 516n. There the defendant was the sole beneficial owner of the shares of a company incorporated and doing business in Scotland; the company was assessed in respect of excess property tax and income tax; to escape the effect of these taxes the defendant caused the company to pay him large sums which he deposited in Eire and he removed himself to that country; enough money was left in the company to pay its creditors; the Inland Revenue petitioned to wind up the company compulsorily, an order was made and Macharg was appointed liquidator; he worked in every respect hand in glove with the authorities in an effort “to chase the tax”; finally the company and Macharg took proceedings in Eire for an account of all moneys due to the company by the defendant and for other relief. Kingsmill Moore J. held that the sole object of the liquidation proceedings in Scotland was to collect a revenue debt and that the sole object of the proceedings in Eire was to collect a Scottish revenue debt, and he rejected the claim. An appeal was dismissed by the Supreme Court of Eire. Government of India, Ministry of Finance (Revenue Division) v. Taylor, [1955] A.C. 491, [1955] 1 All E.R. 292, is also distinguishable. There the Government of India sought to prove in the voluntary liquidation of a company registered in the United Kingdom but trading in India for a sum due in respect of Indian income tax; the proof of debt was rejected. Still another case is Re Visser; Queen of Holland v. Drukker, [1928] Ch. 877, where the Queen sued in England the administrator of the estate of a Dutch subject, who died domiciled in Holland, to recover Dutch death duties; applying the rule sought to be invoked here, Tomlin J. dismissed the suit. In every one of the cases I have referred to, success would have enriched the treasury of the interested state. In the case at bar, whether or not the respondent trustee is indemnified cannot affect to the slightest degree the amount of estate duty collected in England. Further, in each of those cases the foreign state was, in England or Eire, the plaintiff, the claimant or the instigator of the proceedings. Here the United Kingdom has nothing whatever to do with the respondent’s claim to be indemnified.

14 For similar reasons one can distinguish Banco de Vizcaya v. Don Alfonso de Borbon y Austria, [1935] 1 K.B. 140: The ex-King of Spain had deposited with the Westminster Bank certain securities with instructions that they were to be held to the order of the Banco de Vizcaya as his agents. After the Revolution the ex-King claimed the deposits and they were at the same time claimed by the Spanish bank, on the ground that by decree of the Spanish Government all the property of the King had been confiscated to the state and all Spanish bankers having such property or deposit had been ordered to deliver it to the Spanish treasury. In an interpleader issue Lawrence J. rejected the claim of the bank, holding that the substance of the right sought to be enforced by the bank was the delivery to it of the securities, and that the enforcement of such right would directly or indirectly involve the execution of what were undoubtedly and admittedly penal laws of the Spanish Republic. He rejected the argument that the bank was only enforcing its own contractual rights against the Westminster Bank. In substance it was not enforcing its own contractual rights but the rights of the Spanish Republic.

15 The development of the rule, which was first applied to penal laws, is obscure. Two possible explanations were mentioned by Lord Keith of Avonholm in Government of India, Ministry of Finance (Revenue Division) v. Taylor, supra, in a passage that is quoted by Cartwright J. in United States of America v. Harden, supra, at p. 370. It is first said:

One explanation of the rule thus illustrated may be thought to be that enforcement of a claim for taxes is but an extension of the sovereign power which imposed the taxes, and that an assertion of sovereign authority by one State within the territory of another, as distinct from a patrimonial claim by a foreign sovereign, is (treaty or convention apart) contrary to all concepts of independent sovereignties.

16 There is here no assertion of sovereign authority by the United Kingdom in British Columbia. The other explanation, perhaps over-simplified, is that entertainment of a suit for taxes imposed by a foreign state may involve a scrutiny of the liability to see whether it runs counter to the settled public policy of the domestic state; such a scrutiny involves the relations between the states themselves, and courts are incompetent to deal with such relations. As Learned Hand J. is quoted as saying, “No court ought to undertake an inquiry which it cannot prosecute without determining whether those (revenue) laws are consonant with its own notions of what is proper.” This case requires no such scrutiny or inquiry. The Court is concerned only with the fact that by reason of its position as trustee of the testatrix’s estate the respondent became accountable, in circumstances where the liability could be enforced against it, to pay a tax. For what it is worth, a consideration of these two explanations does not suggest that the rule should be applied here.

17 In my opinion the appellant has failed to show that the rule (or proposition or principle) referred to in United States of America v. Harden, supra, applies to this case, and consequently has failed to show any good reason why the respondent trustee should bear any part of the estate duty itself. I would dismiss the appeal.